In the hour and a half since the strong 5yr Treasury auction, bond markets have done a good job of bouncing back and holding gains.  The initial improvement was fairly quick, and leveled off within the first 30 minutes--forming a narrow little consolidative range.

Only in the past few minutes have MBS and Treasuries moved out of that range and into stronger territory.  We had a few non-sequitur negative reprices even after the bounce back, but that seems less likely now.  If anything, positive reprices are more likely.

Fannie 3.5s are currently up 5 ticks at 102-16 and 10yr yields are down 2.9bps at 2.462.

The day's only significant econ data--Consumer Confidence--was much stronger than expected.  It took bond markets a few minutes to commit to a reaction, but when the did, it was understandably weaker.  The major caveat to the weakness is that US bond markets are also taking cues from European trading and domestic equities in addition to the Confidence numbers.  In general, it seems like EU trading is keeping a lid on US bond market weakness.

Fannie 3.5s are down to 102-14 from 102-18 highs earlier this morning and 10yr yields moved up from 2.46 to 2.476 after the data.  As of now, we're still seeing both MBS and Treasuries poke and prod at slightly weaker levels.  In other words, there's no discernible "bounce" yet (but we may be working on one now, hopefully).  If we continue losing ground at this pace, negative reprices could become possible shortly.

Here's the run-down on the Confidence data:

• July Consumer Confidence 90.9 vs 85.3 forecast
• June revised to 86.4 from 85.2
• Present Situation 88.3 vs 86.3 last month
• Expectations Index 92.7 vs 86.4 previously
• "jobs-hard-to-get" 30.7 vs 30.7 previously
• overall confidence headline is highest since Oct 2007

It's been a slow start to the week with very little movement so far in the domestic session.  Before that, Treasury yields moved slightly higher in the overnight session.

Reasons for the weakness include a general decrease in the level of geopolitical anxiety as well as a simple technical bounce foreshadowed by 10yr yields inability to get below 2.466 on Friday afternoon.  All bond markets have really done is pull back just slightly from there.

That made for a few ticks of weakness for MBS at the open.  Since then, Fannie 3.5s have moved up from 102-09 to 102-11.  There haven't been any major market-moving headlines or instances of scheduled data.

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.