Bonds Recover from Japanese Selloff but Volume Thin

The only flows are being seen in position squaring, but even those have been light.
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It's been this way for the last couple of trading sessions: Japanese trading knocks the market down, and it's up to the U.S. traders to decide whether to lift it back up again or stay down.

Today the market is getting up. The 30-year Treasury is off the overnight lows of 15/32 and is currently up 5/32 to trade at 102 14/32. The yield declined to 5.09%.

Expectations as reported by

Reuters

The overnight session, Japan's last for the year, saw the 10-year JGB sell off by more than 12 basis points, enough to push the yield on that benchmark issue to 2.01%, its widest level since September 1997. The spread between the 10-year Japanese bond and the U.S. 10-year bond is currently 266 basis points, down from 415 basis points earlier in the year.

Supply concerns are burdening the Japanese market, as the government plans to sell double the bonds they did in 1998.

The recent run-up in Japanese bonds has helped the yen firm against the dollar. The dollar was down 0.95 against the yen to trade at 114.63, its lowest level since Aug. 8, 1997. The

Nikkei

was comparatively quiet, down 4.73 points.

This morning's domestic activity has been "extremely quiet," according to Mike Cloherty, economist at

Credit Suisse First Boston

. "The only real flows you're seeing is in position squaring ahead of the year-end, and even that's very light."

GovPX

volume was down 48% as of 10 a.m. EST. Most of the yield curve is in the black this morning, with the two-year the laggard, only up 3/32.