To be fair to the entire bond market, Treasuries actually didn't fade that much. After making it into the 2.47's, 10yr yields are drifting sideways near 2.50--still more than 0.04% lower on the day, meaning they've given back only about a third of the day's gains.
MBS, on the other hand, haven't even managed to hold on to a third of the day's gains. Fannie 3.5s were up over half a point at the highs and are now coasting sideways, just 4 ticks (.125) higher than yesterday's latest levels. As you can imagine, almost every lender repriced on that weakness.
The gorilla in the room today was European bond markets again, followed by a tradeflow snowball domestically. More simply put, European trading helped bond markets get back to positive territory even after stronger economic data. Traders who had been planning on rates moving higher after that data were then caught offsides and scrambled to head back lower in rate. That simply pushes yields lower, forcing more traders to get on board or face potentially bigger losses.
European trading helped the tone stay positive through the morning and after Europe closed, US bond markets began heading back in the other direction. MBS took this harder than Treasuries, mostly because of how well they had been doing yesterday and this morning. In other words, these sorts of rallies normally see Treasuries outperforming MBS to a greater extent, but demand (for MBS relative to Treasuries) stayed strong in the morning. It returned to more normal levels in the afternoon.
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