Our benchmark FNMA 6.0% mortgage bond bounced back by 12bp to close at $101.12, but fell from its best intraday level of $101.40 with a failed rally attempt past key overhead resistance at the 200-day MA at $101.29. Bonds reacted to a falling stock market that responded negatively to bad economic news. Retail Sales were horrendous in October with sales falling off a cliff by a record -2.8% vs. a -2.1% estimate. It was the 4th consecutive monthly decline and was led by a severe drop in auto and gasoline prices. After excluding a 5.5% drop in auto sales, Retail Sales plunged by a record -2.2% vs. expectations for a -1.2% drop ex-auto. Retail Sales are now down 4.1% over the past year and were revised lower to -1.3% in September from -1.2%. Import Prices plunged by -4.7% in October, the most in 20 years, as imported crude oil prices fell by 16.7%. After excluding the effects of falling oil prices, Import Prices fell by -0.9% matching September's drop of -0.9%. For the 3rd Qtr., import prices have fallen 2.2%, the largest quarterly decline in Index history. Export Prices excluding agriculture prices fell by -1.2%. The data suggests the economy is now in a deflationary environment rather than in an inflationary one and this works to favor the bond market. In other economic news, the Preliminary University of Michigan Consumer Sentiment Index for November came in a little better than expected at 57.9 vs. 57.0 forecast and slightly better than October's level of 57.6. Fed Chairman Ben Bernanke, at a central banking conference in Frankfurt, Germany, said 'There have been some fleeting signs of improvement in credit market conditions, but market volatility and the latest reports on economic conditions make clear that challenges remain for the global economy.' Bernanke stated the world's Central Banks 'stand ready to take more action' indicating further Fed rate cuts may be in the works. However, the Fed only has 100bp to work with before rates fall to zero. On the credit scene, the three-month dollar LIBOR rate continued to head in the 'wrong' direction today with a rise to 2.24% from yesterday's rate of 2.15%. This is the second consecutive day of rising dollar-based LIBOR rates indicating banks are worrying more about the health of the financial sector and are showing a greater tendency to hang onto their cash rather than to lend it out. After a turbulent session, the Dow fell by 337 points to close at 8,497. The broader S&P 500 Index lost 38 points to end at 873 and the NASDAQ Composite Index gave back 79 points to finish at 1,516.