Retail Sales a mixed shopping bag: The headline Retail Sales data was just a tad better than market expectations (.02% vs est of 0.1%) but when you strip out autos, it really jumped (0.7% vs est 0.4%). If this was the only piece of economic data, then MBS would certainly sell off. However, offsetting this data was the fact that the prior periods were revised lower (for example Retail Sales went from 0.7% down to 0.4%). So, the prior period was not as strong as originally thought.

Import Prices: Just about everything we make or buy in this country either is made overseas or has some component from overseas in the final assembly. So, Import Prices is closely watched as a marker for inflation. Month-over-month it came in at 0.1% which was less than the forecasts of 0.3%. On a year-over-year basis it came in at -1.3%. There is certainly no inflationary pressure here and this report is generally very bond friendly.

Key Technical Test: The 4.0 February coupon smashed through their 50 and 100 day moving averages yesterday. But the 3.5 coupon hit its 100 day moving average and it held. And so far this morning, we have pulled back from that ceiling of resistance as we have switched from using the 4.0 coupon to the 3.50 coupon as our benchmark. We now have what we believe is a "top end" to the recent MBS rally and this needs to be very closely watched.