A lot of economists are saying today’s S&P’s negative outlook for U.S. debt is ‘no big deal’ but markets are reacting otherwise. Stocks are down sharply (Dow -212, S&P 500 -21) and bonds are continuing Friday’s big rally (FNMA 30yr 4% coupon +31 basis points, 10yr Note +34 basis points).

Our WeeklyBasis report Saturday predicted rates would continue last week’s improvement early this week then start to get a bit worse later in the week as markets prepare for tons of data next week. The S&P news supports (and exaggerates) our early-week prediction, but we’re keeping our late-week higher rate position for now—because of rationale provided Saturday, and also because there is some relevance in those ‘no big deal’ comments.