There has been some economic data that bond markets have clearly cared about recently. GDP comes to mind as the most recent example. But it was barely a week later when bond markets were back at pre-GDP levels. What changed? (Hint: it wasn't as simple as the small miss in NFP).
In a word, 'nothing.' Nothing has changed since April when European markets really took charge of the trends in US bond markets. Sure, we've managed to sprinkle in smaller course corrections courtesy of domestic economic data and geopolitics, but at the end of the day, the European wet blanket continues to weigh down domestic bond yields.
Betting against that phenomenon has been bad news ever since, but the constant question remains: "ok, was that enough of a rally yet?" To some extent, traders are trying to catch the falling knife of the turn in the 2014 rally. They don't necessarily need to pinpoint exactly when Europe bounces, but simply when there isn't likely to be much more room left to run lower in yield.
In that environment, domestic economic data is still worth something as a short term market mover. On the occasions where that data makes the same suggest to bond markets as European influences, the movement can be doubly swift.
This is a risk today if Retail Sales--and to a lesser extent, the 10yr Treasury Auction--both have negative effects on bond markets. Reasons being: German Bund yields (the benchmark for the European bond market) are working on a move away from all-time lows, and the technical landscape in US Treasuries remain at risk of confirming a move into weaker territory. Long story short, if things go bad today, they could go "more bad."
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