It's only fitting to throw in a vacation-themed reference on Labor Day week. Unfortunately, only the metaphor is lighthearted. It's underlying message is a bit more troubling--potentially, anyway.
As far as we could see this week, the summertime fun was still in full effect as of yesterday. It would be an overstatement to say the mild Treasury weakness was a cause for concern. It was especially forgettable in light of strong MBS outperformance and equally strong rate sheets.
Things changed today, and quickly! Overnight news regarding newly scheduled US/China trade talks sent yields moderately higher overnight. Domestic economic data did the rest of the damage with every report that mattered coming in stronger than expected. Of these, the ISM Non-Manufacturing data was the worst offender.
Bonds were so overtly willing to react to the data that we have that it suggests traders may have been looking for an excuse to help the bond market undergo a bit of correction after August's relative invincibility. As such, tomorrow's NFP data will be a big deal. It will either provide equally big motivation for movement or help confirm that today's weakness was more to do with timing and technicals than an actual read on the implications of the data and events.