MBS and Treasuries started the day in slightly weaker territory after a fairly uneventful overnight session.  On NFP day, all eyes are on 8:30am anyway.  Payrolls printed moderately weaker than expected (209k vs 233), but with some strength in the internals (also some weakness in the internals!  We're looking at you, 'average earnings' at 0.0 vs 0.2 forecast!).

The result was a tepid rally for bond markets--one that now only accounts for half of the day's improvement in MBS.  The turning point came moments after the stronger-than-expected ISM data.  Bond markets moved weaker at first, but both MBS and Treasuries stepped in with supportive buying right at the post-NFP lows (or 'highs' in terms of yield). 

In other words, bond markets saw the extra weakness as a clear buying opportunity.  This is equivalent to showing one's cards, and the cards were more in favor of bonds than the data might suggest.  Big trades came across the CME's block trade screen at 10:30 and European bond markets joined in the rally full force.  All the while, domestic stocks were in the process of another swoon, beginning right in line with the bounce in bonds, taking the S&P lower by 15 points (on top of yesterday's already huge selling).