There are several ways to justify bond market weakness this morning.  We could look at the spike in oil prices beginning at 7:30am, the overnight selling in European bond markets, the 9:30am NYSE open (which saw a "sell bonds, buy stocks" trade), the stronger Consumer Confidence numbers, or most appropriately, all of the above.

Simply put, bonds are on the back foot at a dangerous time of year.  Light volume/liquidity makes trading levels move more easily than they otherwise would.

Fannie 3.0s are now down an eighth of a point from the time that several lenders put out the first rate sheets of the day.  Fannie 3.5s are close.  As such, we're right on the threshold of negative reprice risk.  Any additional weakness (think 2/32nds or so) greatly increases the risk for the early/aggressive lenders.