MBS and Treasuries began the day in unchanged territory. There was a bit of a positive backdrop in place from overnight news that Germany's central bank would support aggressive monetary policy action. EU bond markets benefited more directly from that news, but Treasuries were perhaps better able to avoid slipping into weaker territory.
The big market mover of the day arrived 30 minutes later with an exceptionally weak Retail Sales report. Versus an expectation of 0.4%, the headline for April only managed a 0.1% gain. The internals were even weaker as sales actually fell when Auto and Gas sales were excluded.
10yr yields dropped from 2.66 to 2.63 initially, and then worked their way down to 2.62 before settling down. Fannie 3.5 MBS jumped from 101-19 to 101-26 initially, and have gradually added another 3 ticks since then (101-29). Most of the gains were intact before the first rate sheets of the day, thus limiting positive reprice potential.
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