Simply put, there's been a moderate, but pervasive amount of bond market weakness intact ever since yesterday's quarter-end trading wrapped up.  As we discussed on several recent occasions, the risk was that the strong showing into quarter-end could see a bit of a correction into the new quarter.  Today's weakness doesn't look any more complicated than that.

Treasuries lost ground consistently overnight.  MBS were happy to take part.  9:30am was the roughest patch of the day so far, and here more than anywhere else, we see evidence of the 'new quarter' trading dynamic.  Reason being: equities markets figure prominently into quarter-to-quarter trading allocations.  They were generally moving lower since June 20th as Treasuries began their rally.  This, along with a few other clues suggested quarter-end trading was an ongoing consideration in the last 2 weeks of June.

Now that stocks have taken off like a stuck pig at 9:30am and with bond markets progressively under pressure on the first day of July, it simply looks like the 'new-quarter correction' hypothesis was the winner.  How far it runs, is another matter.  Despite the weakness, bond markets are already fighting for support.  This is seen in 10yr yields holding mostly under 2.56 with 2.57 being a sign of something more serious.  In Fannie 3.5 MBS, 102-18 has been a supportive floor so far today with 102-16 being the equivalent "more serious" inflection point. 

Data hasn't mattered as ISM was close to consensus and merely made for sideways volatility amid the broader trend toward weaker levels.