MBS Are at their best levels of the day, just over yesterday's highs.  Fannie 3.5s are a quarter of a point higher at 102-12.  While a quarter of a point is a solid improvement day-over-day, it's only an eighth of a point higher than most lenders' rate sheet print times, meaning we're just now getting to the leading edge of positive reprice potential. 

10yr yields have moved 4.4bps lower to 2.466 and the S&P is down over 10 points.  The improvement in Treasuries is fairly uninteresting considering yesterday's weakness was fairly pronounced.  In short, it simply puts us right back in the holding-zone that had been intact since last Thursday. 

A break below 2.44 would be a different story (in that it would be more interesting).  As it stands, we're still waiting for next week's big-ticket events to cast a vote on whether we break lower (i.e. move through to 2.3's) or bounce back up, effectively remaining in 2014's established range.  That said, the waiting is much more comfortable today than it was yesterday.

Believe it or not, this isn't the first appearance of the exact same "paradox" headline.  That's because The Durable Goods report has some significant components beyond the headline and because of its implication on GDP.  This time around, the culprit is the same as it was in March (last time that headline appeared): Nondefense Capital Goods Orders Excluding Aircraft. 

While the current report came in at +1.4 vs a forecast of +0.5 (a 0.9 beat), the last report was revised from +0.7 to -1.2 (a 1.9 decrease).  Economists/Analysts/Trader teams will have already baked in their forecasts to next week's GDP expectations, but can't bake in revisions until their known. 

As such, today's Durables data leaves a net loss of 1.0 in that 'Nodefense Ex-Air' segment, which is a fairly substantial negative mark against next week's Q2 GDP.  And that's why bond markets improved despite the stronger headline ("headline" refers to overall Durable Goods at +0.7 vs +0.5 forecast).

Before that, both Treasuries and MBS were in moderately weaker territory.  Fannie 3.5s are now up 3 ticks at 102-07 and 10yr yields are down 1.6bps at 2.493.