Bond markets saw a decent amount of strength in the afternoon.  It ultimately allowed 10yr yields and MBS to return to positive territory by the end of the day, although they'd be best-characterized as merely "unchanged."  Who knows where trading levels would have shaken out were it not for the significantly stronger ISM non-manufacturing data this morning.

ISM came in at the best levels since 2005, essentially matching the best-since-2004 performance of the "manufacturing" version of the same report on Monday.  Here too, the "prices paid" component was the highest in several years.  Why does that matter?  Simply because the Fed is desperately seeking inflation in order to justify its rate hike trajectory.  In fact, if inflation doesn't pick up in the coming months, the Fed may have to continue dialing back its anticipated rate hike pace.  

Bonds were in roughly unchanged territory ahead of the ISM data, and then moved quickly into weaker territory afterward. Even then, it's getting tempting to buy into what some of the bond bulls may be selling.  For a while now, our stance has been "the trend is unfriendly until it proves itself to be something else."  By returning to positive territory even after the ISM data, the new record highs in stocks, and in an afternoon that didn't benefit from the recently positive effects of European bond trading, we may be seeing some early signs of a trend reversal.