Bond markets had an opportunity to jump back on the selling wagon today after yesterday's positive bounce.  As we discussed, yesterday's gains were driven, in part, by short-covering.  That's another way of saying that bond sellers were taking a quick break and would decide on their next move when they punched back in.  

It looks like they tried to punch back in this morning.  Despite a weaker-than-expected Retail Sales report, bonds began selling off in the hour following the economic data.  One counterpoint may have been that some of the other data was stronger than expected, but I would maintain that Retail Sales is far and away the headliner among today's company.  In other words, if bonds were purely trading today's data, we would have seen some gains.

Instead, the positive effects from the weaker Retail Sales data were balanced by the ongoing negative effects.  In today's case, we got another clear glimpse of bond volatility surrounding the 9:30am NYSE open.  This was a "negative effect" today, as it was an opportunity for those "resting short-sellers" (mentioned above) to get back into the market.  Clearly, there is a contingent of traders interested in selling bonds, but there weren't enough of them to extend recent losses today.

That's grounds for cautious optimism as it could be the first step in establishing a more sideways range ahead of next week's Fed Announcement.  We'll be able to confirm that if we still haven't seen any new highs in yields after tomorrow's CPI data.