Today began with a bit of hope for bonds after yesterday did its best to convince us that hope is pointless in this market.  The Day Ahead has several charts that show a somewhat coordinated bounce in US/EU bonds and equities futures.

Stocks are currently peeking above the line in that chart, but bonds continue holding theirs.  We shouldn't be too shocked to see the correlation begin to decrease to whatever extent stocks aren't making huge moves.  (In other words, rates won't necessarily make noticeable moves in relation to stocks unless stocks are REALLY moving).

Resilience is notable this morning not only because stocks haven't resumed their selling spree (the root cause of this week's stronger bond levels), but also because we have a 10yr Treasury auction coming up this afternoon.  The morning hours are critical because bond rallies in advance of a 10yr auction tend to bode very well for bond trading in the the 2nd half of the week (which essentially begins after today's auction).

Despite the resilience, bonds aren't getting ahead of themselves.  10yr yields have thus far avoided breaking below a pivot point from yesterday (and again this morning) at 2.775%.  As long as we're not drifting over yesterday's highs, that's fine by me.  I'd rather see ground-holding this morning instead of an overly strong rally because the latter could jeopardize the 10yr auction's potential strength and cause confusion among traders who may have otherwise been willing to jump on a positive bandwagon.

Since the tone of this update is slightly positive, it's worth noting that the broader trend remains negative until we see bigger, more sustained positivity in the short term.  Bottom line, don't let the positive tone endorse complacency when it comes to being ready to lock if needed.