We expected the impact of today's Retail Sales report to be somewhat muted owing to big-ticket events later in the day (10yr Auction and FOMC Announcement).

While we are seeing less of a response in markets than we'd otherwise see without the afternoon line-up, it's still been negative for bond markets. 10yr yields are up nearly another 2 bps to 2.07, the highest since they hit 2.08 on 2/22.

MBS have fallen well past their 103-10 pivot that supported yesterday afternoon's selling, currently down 4 ticks at 103-05.

Stocks are actually down as well, perhaps due to a sort of vertigo after having risen fairly well overnight. Or maybe they were hoping for more from Retail Sales. Or MAYBE, both stocks and bonds are lower because today's data puts another nail in the coffin of any potential QE3 announcement later today.

Indeed that's what seemed to be the case as bond markets were the first to react to Sales data, throwing their arms up and saying "well... there goes our chance for the Fed to signal more buying today!"

Volume, while definitely stronger than yesterday, remains subdued. That speaks somewhat to the sense of "muted response." Supporting that outlook is the fact that 10 yr yields haven't take out any major highs from 2012 (ranging from 2.074 to 2.094). We really need a solid auction at 1pm to keep those technicals intact, or the hour and change leading up to FOMC at 2:15pm could get sloppy, muddying the waters of proportionate market reaction with tradeflow factors (think, snowball selling).

While such snowball selling is eventually the sort of thing that reverses itself, it wouldn't do any favors for rate sheets today. Even being down only an eighth of a point in MBS, we'd expect rate sheets to be adjusted a bit more than that unless a significant bounce back materializes in short order.

* Headline +1.1 vs +1.0 forecast
* Previous month revised up from +.4 to +.6
* Ex Autos +0.9 vs +0.7 forecast
* Previous ex-autos revised up from +0.7 to +1.1
* Largest rise since Sept 2011 (+1.3)

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $407.8 billion, an increase of 1.1 percent (±0.5%) from the previous month and 6.5 percent (±0.7%) above February 2011. Total sales for the December 2011 through February 2012 period were up 6.4 percent (±0.5%) from the same period a year ago. The December 2011 to January 2012 percent change was revised from 0.4 percent (±0.5)* to 0.6 percent (±0.2%).

Retail trade sales were up 1.1 percent (±0.5%) from January 2012 and 6.3 percent (±0.7%) above last year. Building material and garden equipment and supplies dealers sales were up 13.8 percent (±2.6%) from February 2011 and gasoline stations were up 10.3 percent (±1.7%) from last year.