As we discussed in The Day Ahead, bond markets were sending signals that they were embarking on a trend of improvement.  The caveat was that those signals were so obvious that we could safely assume most market participants were well-aware of them.  That robs them of much of their predictive potency and it made this morning's economic data the potential deciding factor.

The data decided to keep the rally alive.

The most relevant headline this morning was the disappointing improvement in Personal Consumption (+0.2 vs +0.4 forecast).  Inflation stayed steady, and inflation-adjusted spending fell yet again.  The only other report--Jobless Claims--was so close to forecasts as to be a non-issue.

After the data, two Fed speakers had generally accommodative things to say, such as unemployment likely understating the slack in labor markets and the willingness to push rate hikes back if economic conditions miss forecasts.  The comments in and of themselves weren't remarkable, but the fact that they came from two Fed speakers who tend to be a bit more conservative in their views, made them more interesting.

Bonds rallied on the data, then they rallied some more as stocks swooned and as Fed Speakers (Bullard and Lacker) answered questions.  European bond markets were rallying to 2014 lows at the same time, which is a known consideration for US Treasuries.  MBS have been a quarter of a point higher at their best levels, and are only a few ticks off presently.