The market's starting to look further ahead. There seems to be the sentiment that the economy will cool and the Fed (once it hikes interest rates later this month) will be done.

The market took the report in context -- which is that it is often distorted by aircraft orders. It didn't really ignite the bond bulls that the headline number was down so much.

The economic numbers didn't really have an affect on the (bond) market, ... Housing starts were strong, but . . . the market was already reaching support in the softer stock market and softer manufacturing numbers.

The Chicago PMI sent us back to near the lows, though we had seen the bond market handling some heavy selling before then,

The idea that's been gaining currency in the market is the Fed pause theory, meaning that the Fed raises rates 25 basis points in September and then, because inflation pressures are contained, they pause for a while, skipping a move in November and maybe even December. The (producer price index) data this morning kind of fed into that theory.

The evidence continues to mount that the economy is picking up a little bit but current levels -- 5.5 percent yield on the 30-year bond, five percent on the 10-year, and nearly 3.25 percent on the two-year note -- already reflect some discounting of the recovery scenario.

The initial excitement wore off. People were positioned for it,

I do think the rise in oil is significant enough already that that's going to buy us headline inflation higher in the next few months. We'll probably get up toward 3 percent.

If the recovery turns out to be even stronger than the market currently thinks, then we'll see some more selling, but we have some cushion (for recovery) built into prices now.

In a short-term perspective, the market has found a top and needs to consolidate.