Bond market volatility rises amid recession and banking risks.

The bond market experienced a reversal due to the prospects of global banking contagion. Yesterday, bonds rallied due to fear, while today, they sold off due to hope. The market was mostly flat overnight, with modest gains early and no reaction to data. However, the market lost ground quickly on First Republic bailout headlines. The selling spree leveled off shortly into the PM hours, with MBS down 3/8ths on the day and 10yr yields up 10.5bps at 3.57.