Yesterday we discussed the rally in bonds as a function of short-covering.  That meant traders were in a defensive position on Tuesday night--betting on rates moving higher--and then closed those positions yesterday.  Closing a short position equates to "buying."  Buying results in yields moving nicely--and even unexpectedly lower.  

The problem with short-covering rallies is that they're not indicative of organic buying demand.  That means that the news or event prompting traders to move to the sidelines has to have a positive impact on bond markets or trading levels will simply move right back to where they were before the short-covering rally.  In a nutshell, that was today.

Yields never even thought about approaching some of the higher recent levels, but neither did they make a serious attempt to move below the 2.35% technical level.  The ECB "tapered" (though Draghi said the word never came up) inasmuch as it announced a reduction in the pace of its asset purchases.  The announcement was bond-friendly enough that it had fairly minimal impact.  For example, German Bunds only rose to .38 from .35 at yesterday's close--fairly well in line with the .37 close from Tuesday.

With no more significant data or events on tap this week, all we can do is watch technical levels and wait for markets to give us a sign.  Until 2.42% in 10yr yields is definitively broken, it continues its fight to act as a ceiling.  Even if it breaks, the big-picture pivot is just overhead at 2.50%.