MBS Live Day Ahead: Important Data and ECB Reaction

In the day just passed, bonds managed to rally in the overnight session with help from weaker European economic data, which fueled expectations for an even friendlier central bank announcement than was already expected.  Weaker domestic data added to the gains at 9:45am, but wasn't able to push yields below the previous session's lows.

In the day ahead, bonds begin with yields having been pushed below Tuesday's lows!  Credit goes to Europe once again as the European Central Bank (ECB) was indeed able to convince the market of its dovish intent with the 7:45am policy statement.  Traders expect Mario Draghi to reiterate the friendly message in his press conference at 8:30am.  At the same time, the week's biggest domestic data hits in the form of Durable Goods.

Today's charts show two different looks at US 10yr yields vs Germany's 10yr yield.  Depending on the y-axis scaling, it's easy to see plenty of correlation as well as plenty of resistance on the part of Treasuries to the notion of being pulled much lower.  At a certain point, that could change if the traders who are pushing back are forced to cover short positions and capitulate to the strong bond-buying momentum.