It's always a bit disheartening when the day after an awesome rally ends up erasing a good-sized chunk of the gains.  That was the case today as the close of European markets once again coincided with domestic weakness.  The sharper moves were certainly in Europe, both in stocks and bonds, heading into the noon hour, but it was an important rush of weakness for US markets as well.  Reason being: it pushed 10yr yields over 1.95%, a technical level that--once broken--prompted additional selling pressure.

In qualitative terms, 1.95 was like a line between being able to say that bonds were "mostly holding yesterday's gains" being forced to say that bonds had "erased some of yesterday's gains."  Notably, the adjective for the second option is "some" as opposed to "most." 

All that having been said, if we take just a few steps back to look at how things are evolving in the bigger picture, it may not be the end of the world.  The question came up several times on MBS Live today: "was yesterday a head fake?"  At the very least, I'd say that's a premature conclusion.  In fact, as of now, it's still more likely that today's correction is the head fake if, for no other reason, than the longer term trend was in no way challenged by this weakness.  Far from it.  It's actually easier to make the case that today solidified the long term trend.  After all, we can still say 10's broke through all 3 moving averages this week and closed below them today.

For what it's worth, if you haven't seen it yet today, the Day Ahead was written for the express purpose of preparing for exactly the sort of half-hearted pull-back we saw today.