Today's key event for bonds was the 10yr Treasury auction because it served as an acid test for investor demand amid relatively uncertain times.  Unfortunately, the auction was solid, but not so solid as to suggest bond traders had miscalculated a concession that began taking shape yesterday morning.

In other words, yields were moving higher because traders knew they'd need to bid at the auction and higher yields (lower prices) make it easier to bid!  The fact that tomorrow morning brings the CPI data didn't do bond markets any favors.  

Bottom line: traders got into a defensive position ahead of these key events, and the first event confirmed a "just right" amount of defense.

10's ended the day up more than 3bps at 3.006%.  Fannie 3.5 MBS lost 6/32nds and Fannie 4.0 MBS lost an eighth of a point.