News of a 5% gain in U.S. existing home sales to a record 6.12 million pace in July set the ball in motion to the downside. In a thin month-end and pre-holiday market, declines were compounded by fear gripping the credit markets after ratings agency Fitch downgraded housing agency Freddie Mac's subordinated debt and preferred stock ratings (though S&P and Moody's upheld their ratings).
Agency and swap spreads widened back out and Treasury yields backed sharply higher as well. From the 4.40% area 10-year cash yields topped 4.55% before stalling amid talk of mortgage-related duration hedging, though dealers pegged the next significant yield tripwire around 4.65-70% Aug. 14 highs.
Volume was bid up as well, as a hedge against more market mood swings this week. The September bond closed down 28/32 at 106-08, well above 105-16 session lows, while the 2-year note and 30-year bond spread steepened 2 basis points to +335 basis points.