Though it's not the exclusive driver of momentum this afternoon, a lackluster 5yr Note auction did give way to a moderate amount of weakness though bond markets were already coming off their highs heading into the noon hour.

The auction itself wasn't terrible when viewed against longer-term historical averages, but compared to the only 2 examples of the 5yr auction falling within the time-frame of the current range (February and March), it left much to be desired.

As is typically the case for MBS and 10yr yields when it comes to the 5yr auction, there wasn't a big reaction.  It simply cast another vote for a mild correction that was already underway.  On a positive note, it gave MBS a chance to stay sideways long enough for lenders to offer positive reprices.

Additionally, in the past few minutes, the weakness looks like the exception rather than the rule.  10yr yields bounced nicely just before hitting 2.70.  MBS similarly held firm at this morning's pivot point 104-08, currently up 6 ticks on the day (same as last update) at 104-09.

The first two days of the week were 'abnormal.'  It's not that they were particularly strange in any alarming way, just that a few of the more common ingredients in the average bond market recipe were missing.  Certainly, volume and participation were the most notable absences, not to mention outright movement (because there wasn't much movement).  We also saw a noticeable breakdown in the recently strong correlation between stock prices and bond yields.

All that changed overnight and into this morning.  The overnight session saw sensible connections between global economic data and bond market movement.  Weaker data in the Asian session made for a slight boost and stronger data in the European session, a slight detraction.  The net effect was positive for Treasuries overnight, with 10yr yields hitting the domestic session about 2bps lower.

MBS walked in the door about 2/32nds higher in price and gained another tick since then.  The stock lever has been well connected based on futures trading, so the next major potential for movement is coming up just before and after the 6:30am cash open for stocks.  After that, the first and only significant economic data of the day is out at 10am with New Home Sales.

New Home Sales bombed.  Here's the run-down and a chart

• New Home Sales for March 384k vs 450k forecast, 449k previously
• 14.5 pct decline, biggest drop since July 2013 (when rate spike hit the numbers)
• Midwest fared worst -21.5, Northeast improved 12.5 pct
• Supply jolts higher to 6.0 months worth, 5.0 months previously
• Median prices hit record high of $290k

Bond markets moved to their best levels of the day immediately following the data, but not aggressively so.  Stocks also fell, but are already bouncing back.  Bond markets aren't following the bounce though, instead holding near their best levels.

10 yr yields are down 3.3bps on the day at 2.693 and Fannie 4.0s are up 6 ticks at 104-10.