MBS MID-DAY: Holding Seemingly Outsized Gains After Retail Sales Data

There was a better chance that bond markets would react to today's Retail Sales data despite the lack of reaction to the last reading (reasons discussed here).  Not only did we get a reaction today, but it was so big that it didn't even make sense. 

It's not that Retail Sales data isn't capable of moving 10yr yields 6bps or MBS by three eighths of a point.  It's just that we wouldn't expect to see that kind of reaction when the headline is only 0.1 away from the forecast (+0.9 actual vs +1.0 forecast, in today's case).  Even though some of the internal components were a bit weaker, they weren't nearly weak enough to account for the ensuring bond market gains.

Here is the list of additional players discussed in morning update on MBS Live:

• The first and best consideration is that traders were waiting to buy, but couldn't safely do so until stronger data could be ruled out.  If Retail Sales had crushed expectations, bonds would  probably be going the other way--at least at first.  It's easier for traders to jump ON trains after they start moving that to jump OFF trains they'd boarded too early.
• PPI was also out at 8:30 and was in line with expectations (-0.8 vs -0.8 year-over-year)
• European bond markets hit more new all-time lows overnight.
• From a technical standpoint, domestic bond markets had been locked in a boring orbit around safe, central levels.  It was only a matter of time before they picked a direction, and it makes good enough sense that they'd be planning on making that decision after the week's biggest piece of data.  The fact that 10yr yields bottomed out at 1.86 is further evidence that technical considerations are a part of today's move (1.84-1.86 is an important technical zone).