The Treasury market is rallying and trades at approximately the low yields attained earlier in the month. The 10 year note has traded below 2.47 briefly and sits just above that level currently. What is motivating the uptrade?
The greatest motivator of all is job preservation and I think that the throbbing limbic node of those who are short has forced a round of stop loss short covering. There is quite a bit of supply from the Treasury this week and I think traders are short for supply and now they are paying a price for selling that which they did not own.
In addition, the universal belief is that the ECB will take some stimulative action when it meets early in June. I suspect that it will be tough to push prices lower until the meeting is over at which point we will probably sell off when the news is announced. The anticipation of lower rates in Europe is also a catalyst for buying of Treasuries. If the ECB engages in some full-throated easy money action the currency should take a hit. So traders and investors are probably exiting the Euro for safe sanctuary elsewhere and what better haven than the US where 5 and 10 year paper is 110 and 112 basis points. respectively, cheap to Europe. There is a gigantic yield grab within Europe itself as 5 year and 10 year bonds of Spain and Italy have experience significant yield declines the last several days.
There is also a chunky month end extension to deal with on the last trading day of the month.
One last thought and this is derived from something my former colleague Richard Gilhooly at Securities wrote. He wrote that the results of the EU elections over the weekend suggest widespread disenchantment with austerity. I would argue that result augurs stimulative policy action and easier money going forward.
The bottom line on the morning rally is that it is a result of a confluence of events each of which supports lower yields.