By now, it's clear that 3 days of bad employment data gave MBS a big boost this week, but if it feels like there's more to it than that, there is.  Last week, markets were partly deceived by an overabundance of attention being paid to Cyprus, when in fact it was Italy that has been and still is the bigger deal as far as systemic Eurozone risk is concerned. That realization worked its way through markets last Wednesday, and we were then left with an eerie silence, not quite sure what to expect after the long holiday weekend. Europe was out until Tuesday, and when they got back in, we not only heard that it would be 10 days before any substantive news from Italy was even possible, but we also saw that European markets didn't have much else to say. Things stayed unbelievable flat through Tuesday and it dawned on us (and probably a lot of other market participants) that all we had coming up were several big pieces of employment data, culminating with the biggest this morning.

Recall that a huge reason for mortgage market weakness so far in 2013 has been the adjustment of Fed buying expectations. These three days of crummy labor market indicators have served as the cold bucket of water for the red hot ingot that has been mortgage underperformance in 2013. You know how that blacksmith stuff works? Big sizzle noise, lots of steam, and voila! Expectations for Fed MBS buying have been tempered! The fact that bond markets were caught a bit offsides on Wednesday morning helped fuel the sense of abruptness as well. There's still some chance that this was all just an epic cleansing process of trading positions that were betting too heavily on higher rates, but we'll need a few more days of reaction to start assessing that possibility. For now, this is only the first day since early December that rates have truly challenged their long-term uptrend.