Bond markets had an uneventful overnight session for the most part.  Heading into the 7am hour, yields improved to their lowest levels of the morning before finally finding their limit.  I'm talking--of course--about European bond yields, which hit another new all-time low before bouncing higher and dragging Treasuries along for the ride.

Actually, European stocks swooped to a new December low and bounced at the same time.  Essentially, this was the point at which the global flight-to-safety ran out of steam for today.  It had begun to do the same thing yesterday, but stock market weakness helped bonds overcome their urge to bounce.  The opposite is true today, and truer still when it comes to domestic stock markets, which have erased most of yesterday's losses.

By most accounts, this is all about this morning's strong Retail Sales numbers, but again, the trend had already reversed well before the data.  The data just happened to be in line with the trend, so the effects were bigger--exactly as I suggested earlier this morning when I said Retail Sales was "not enough to counteract any major movement overseas, but if it happens to suggest the same movement as overseas data, things could start moving very quickly indeed." 

And so it is that most of yesterday's gains have now been erased for bond markets.  Considering the moves in stocks, Europe, and the econ data, we're actually not doing too poorly.  That's especially true for MBS, who thankfully have the Fed back in buying Fannie and Freddie 30yr coupons today after a 2-day hiatus.   Fannie 3.5s are down only 5 ticks.