More selling early this morning; the 10 yr at 8:00 was down 11/32 at 3.38%, mortgages were -6/32. At 8:30 with two economic releases the 10 yr was off 23/32 and mortgages -13/32. At 9:00 the 10 yr traded -17/32 at 3.42% +6 BP and mortgage prices -8/32, the DJIA index up 20 points. At 9:30 the stock market opened -7 points, the 10 yr -19/32 at 3.42% and mortgage prices -8/32 frm yesterday's close.

Two key economic reports at 8:30; June retail sales were about in line with estimates, +0.6% overall and +0.3% ex autos against expectations of +0.5% so sales were not quite as strong as thought but still supportive to the view consumers are beginning to spend a little more; mostly for gasoline that was much higher in June than presently. The guts of the data show consumers are still avoiding discretionary spending and shopping at discount stores. Excluding autos sales were up 0.3% but was 0.1% less than in May. Excluding autos, gasoline and building materials -- the retail group the government uses to calculate gross domestic product figures for consumer spending -- sales dropped 0.1%, the same as in the prior month.

June producer price index spiked to +1.8%, double what had been expected; also due to increased gasoline prices but still an initial shock to the interest rate markets. Not only the overall jumped, but the core rate that excludes food and energy jumped 0.5%. Not what fixed income markets wanted to see; inflation concerns have lessened recently but it takes very little to re-ignite concerns with interest rates at these historic low levels. Yr/yr overall PPI at -4.6% but up from -5.0% in May.