Markets giveth and markets taketh away. Bond markets started out in a 'givething' mood following the Bank of Japan policy announcement late last night. Stocks and bond yields fell steadily into the start of the domestic session. The weak revision in Retail Sales helped push yields as low as 1.915 a few minutes after the data, and that was apparently the signal for the 'takething' to begin.
Bonds weren't much concerned with stocks or oil prices during today's sell-off. The only external markets that were arguably correlated were other bond markets, like German Bunds. In fact, a sharp move in Bunds just before 10:30am was credited with pushing domestic bond markets into weaker territory at the fastest pace of the day.
Even without the European influences, traders with short positions had been forced to cover (buy) in the wake of the Retail Sales data, thus leaving an imbalance of sellers heading into the mid-day hours. That was the cue for traders with long positions (bets on rates moving lower) to cover (sell) ahead of tomorrow's FOMC events. The net effect was relatively unchanged trading levels in Treasuries and underperformance in MBS, thanks to the volatility (and the absence of any scheduled Fed buying tomorrow).
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