Bond markets have given up most of yesterday's strength so far this morning, though that's more true for Treasuries than MBS. The morning has been surprisingly uneventful, and in fact, goes a long way toward disbarring the Retail Sales data as a report that's worthy of making a case for the economy. It just hasn't produced much movement in the past several instances.
In terms of 10yr yields, Retail Sales was good for 1.5bps of movement, though it quickly washed out to 0.0bps in the first 15 minutes following the report.
Technical selling (that which is motivated by outright trading levels rather than underlying fundamentals) took over after 10's failed to break 2.84 after repeated attempts. Supply/demand imbalances added to the weakness after the Fed's daily Treasury buying operation (revealing more than the average amount of interested sellers, as the Fed publishes the amount it buys and the amount offered by sellers).
Last, but not least, the stock lever remains a consideration. This was discussed in the Day Ahead, and has come into play again today. As you can see in the chart below, it's by no means the 1:1 ratio seen at times in the past, but the 9:30am-mid-afternoon time frame has seen clear cross-contamination from weaker stocks yesterday and stronger so far today.
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