Holding Modest Gains After Well-Contained, but Busy Overnight Session Given yesterday's brisk movement in bond markets, the overnight session for Treasuries saw a surprisingly narrow range. 10yr yields dropped slightly at the start of the Asian market day and held flat neat 2.704 until European hours. Slightly stronger than expected GDP bumped yields up to 2.73 before a fairly convincing bounce back below 2.70. Heading into the domestic session, buyers were unwilling to commit to anything much below 2.70 and sellers unwilling to take yields beyond overnight highs.

The salient defensive bounce happened at 8:10am and sent bond markets back in friendlier directions well before the PPI data (weaker-than-expected). At the very least, PPI didn't hurt bond markets' chances and it may have even helped slightly, but recall that PPI was heavily discounted over the past several years due to the "margin squeeze" phenomenon where producers were not able to pass on higher prices to consumers. It's relatively discounted now for the same reason working in reverse (i.e. even if producer prices fall, consumer prices aren't expected to fall as fast). MBS began the session in line with yesterday's latest levels and are currently up 4 ticks in Fannie 4.0s at 103-15. 10yr yields are at a very 'conflicted' 2.712--right in the middle of their morning and overnight range.There is no other significant data today though there is a regularly scheduled Fed Treasury buying operation (POMO) from 10:15 - 11:00am and Fed's Bullard speaks in the afternoon.