Goldilocks Bloodies Bonds

To quote the title one of the best children's books around, the bond market had a "terrible, horrible, no good, very bad day."

Like poor Alexander in the story, bond traders woke up with gum in their hair, and the day only got worse. The sticky resilience of the U.S. consumer magnified what many bond traders have been grudgingly coming to terms with for days: no imminent rate cuts and a soft landing. The gum Wednesday was November retail sales figures, which showed a 1% increase, beating expectations for a mere 0.2% increase. Retail sales climbed 1.1% excluding auto sales, also well ahead of expectations.

The strong consumer dashes bond traders' expectations that deep declines in the housing market will spill over into consumption, sending the economy toward recession. The bond market has been almost "frantic to price in the easing cycle," says T.J. Marta, senior fixed-income strategist at RBC Capital Markets. In other words, the bond market has a lot to lose from strong economic data, and with thin holiday trading days ahead, Wednesday's move might have more significance than usual. ...