One theme dominated the day: changing of the guard between June/Q1 trading and July/Q2.  Out with the old, in with the slightly less old, but not fundamentally too different, as they say.

If you've been tuned in to almost any recent MBS Commentary entry, this is the same old dynamic we've been considering (i.e. month/quarter-end trading considerations).  Today was simply the day that the hypothesis had a chance to be tested. 

Sure enough, bond markets saw moderate but pervasive pressure all day long in the same relative distribution that characterized the strength heading into the end of June ('distribution' refers to the parts of the yield curve moving the most, in this case, the longer-dated maturities rallied more yesterday and sold more today).

When these bigger picture trading considerations are about, they run a serious risk of overshadowing the economic data.  A roughly as-expected reading on ISM Manufacturing was no match for the tradeflow steamroller.  OK, steamroller implies more momentum than we can safely assume given that vacation-week trading apathy is making for extra light participation.  That doesn't make current levels irrelevant, but it does mean that any big reaction to Thursday's glut of data will certainly be enough to overcome the "housekeeping" trading we saw today.