Moments after bonds closed yesterday, Fitch downgraded the credit rating for the U.S. government.  Few would disagree that the political criticism (by Fitch's own admission) would have been less out of place back when the debt ceiling debate was still raging.  A downgrade sounded like a big deal, but bonds didn't trade the news at all when they opened in Tokyo a few hours later. 

Then this morning's ADP conjured up memories of last month by crushing forecasts.  Bonds batted one eyelash, but recovered.  It wasn't until the new Treasury auction sizes were announced 15 minutes later that the market began "making room" for more debt (by selling more bonds).

The net effect is yields at their highest levels since November:

The good news is that MBS continue to outperform as they are not Treasuries.  The following chart overlays MBS prices with inverted 10yr yields (to show the correlation).  Notice that the orange line remains above its early July lows while Treasuries just broke into weaker territory.