We've been talking a bit about how yesterday's impressive rally could have had something to do with positioning for today's GDP revision.  The thought was that the first reading of Q1 GDP was such a shock, and so much more of a market mover than normal, that markets could be similarly ready to react to a revision that takes GDP into lower territory.  If the first release was 0.1 (and it was), and today's was forecast at -0.5, and bond markets were already chasing a strong rally, it makes good sense to prepare for a worse-than-expected GDP number.

Keep in mind, that's NOT because there's some "whisper number" floating around, giving traders reason to believe the data would come in weak.  Rather, it's a simple matter of deciding what's easier to trade between a big beat or big miss.  If traders were set up for an as-expected print of -0.5, today's -1.0 (the actual result this morning) might have created another snowball rally to stronger levels.  But the extra strength in yesterday's rally helped traders get ahead of this eventuality. 

The tacit question is "what if it had been stronger than expected?"  We can't know for sure, but in the midst of an ongoing 'pain trade' to lower and lower yields, it's far less disruptive for bond markets to correct higher in yield than it is for them to be unexpectedly chasing yields lower again.  Bottom line, if yesterday's rally wasn't as big, today's GDP might be pushing yields even lower.  But if today's GDP was stronger than expected, it would likely result in the same yields either way (with or without yesterday's extra "oomph").

However much extra momentum was actually contributing to yesterday's rally, we still managed to move into stronger levels today.  It's very much worth noting, however, that this didn't really happen in earnest until the Fed's scheduled Treasury buying operation at 10:15am.  When we see bigger moves around Fed buying, it speaks to the fact that 'tradeflows' are an important consideration at the moment. 

(Read More: What are Tradeflows?)

Both MBS and Treasuries are still in positive territory on the day, but have pulled back toward unchanged levels heading into the afternoon.  That's more true for MBS as they're underpeforming Treasuries a bit.  More simply put, MBS are still inside yesterday's range while Treasury yields are just over a bp below yesterday's low yields.