Yesterday's recap suggested the week had yet to officially begin and that Monday's trading session had been more of an unofficial 3rd day of the weekend. The week definitely "began" for bond markets today, and we'd very much like to go back to that unofficial 3 day weekend, please and thank you!
Bonds tanked, obviously, with Fannie 3.5 MBS losing more than a quarter of a point and 10yr yields rising to challenge the important technical ceiling at 2.42%.
Much of the weakness was a gift from the overnight trading session, led by European bond market weakness. The latter is most easily seen as defensiveness ahead of Thursday's policy announcement from the European Central Bank.
Domestic trading brought some weakness of its own following JP Morgan's weekly update of its Treasury clients' trading positions survey. Whereas some folks might have guessed traders were interested in buying the recent dip in bond prices, the survey suggested traders were even more keen on selling bonds.
The early weakness played out before 8am, leaving most of the domestic hours to drift sideways. Traders did, however, find another great chance to sell bonds after a 3pm headline suggesting Senate leaders informally endorsed John Taylor as a candidate to take the Fed's reins from Yellen.
The issue was they did so by a show of hands after being asked directly by Trump himself. There was some confusion as to whether this was an indication of Trump's leanings or if the experience would influence his decision. Markets ultimately decided it was bad for bonds and pushed bonds into the day's weakest territory during the last hour of trading.