If you happened to look at MBS/Treasuries around 8:35am, the day was looking pretty great.  But that ended up being the best of it, and a long, slow slog back toward more moderate gains ensued.  MBS still managed to walk out the door 5/32nds higher than yesterday, and simply holding yesterday's gains allowed lenders to pass along more of the love in terms of rate sheet improvements. 

The morning's big-ticket item, as-expected, was the last revision of Q1 GDP, which once again missed forecasts by a wide margin (-2.9% vs -1.8% forecast).  As we discussed this morning in The Day Ahead, there's always a chance that the market movement relating to GDP is simply using the data as an excuse to go where it wants to go.

In the current case, that would be more of the same "short covering" we saw in April/May.  This dynamic sees an overabundance of traders betting on rates moving higher, subsequently being forced to buy if rates move lower.  Then the forced buying brings rates that much lower which, in turn, forces more buying until the shorts are finally washed out enough that markets have some more equilibrium. 

The only problem with today's version of that song and dance is that it never happened!  Instead, we got a fairly sensible amount of strength in response to weaker data, and a fairly sensible pull-back ahead of an auction and in response to GDP numbers being parsed (analysts finding ways to make them more palatable as the day went on).  Either those betting on higher rates haven't yet seen rates move low enough to force their collective hands (which would have made for more afternoon strength). 

The next battle is between today's low yields at 2.529 and the previous 2.57 pivot point.