Wednesday's much weaker-than-expected report on March Retail Sales spurred a rally in U.S. Treasuries that sent the yield on the benchmark 10-year note, which moves in the opposite direction of price, to its lowest level in more than a month. Retail sales grew by a paltry 0.3 percent when analysts were expecting a 0.8-percent increase. Excluding autos, retail sales barely moved, adding just 0.1 percent.

Department stores and apparel saw the biggest declines, and many attributed the poor showing to rainy weather and the high price of gas. Others, however, said the slowdown in sales might be just a correction after a string of three months of strong sales.

Bond traders, however, welcomed the news on the premise that weak consumer buying will keep economic growth in check and hold back inflation. That was the mindset until a disappointing auction of five-year notes turned things around. Not only was demand weak, but also the percent of indirect buyers (foreign investors and central banks) came in at 28 percent versus 43 percent in March.

Buyers turned into sellers, sending yields on long-term debt back up, and by the time the markets closed yields were near to those of Tuesday. The drop in yields Tuesday, thanks to a bond-friendly reading of the minutes of the March 22 meeting of the Fed, allowed mortgage lenders who base their rates on yields to edge them down on some mortgage products.

Retail Sales, Earnings Warnings Weigh on Wall Street

The three major stock indices opened in negative territory on the retail report and never looked back. They all closed near their lowest levels of the day, as bad news from corporate America cast a dark shadow. Oddly enough, the Dow Jones Industrials were saved from steeper losses by two upbeat reports. Both Merck and McDonald's said they expect to top earnings estimates. Only six Dow components closed in positive territory, but four of them (including the two mentioned above) gained more than 1 percent, and Merck led with a 2 percent gain.

There was a long list of losers, with AIG, Alcoa and Caterpillar down more than 3 percent, and DuPont and GM showing hefty 2-percent declines. Exxon fell about 2 percent, and 11 components dropped in excess of 1 percent. Oil prices fell again on Wednesday, losing another 3 percent to close at $50.22 a barrel. This put pressure on oil and oil services companies, which have been hit hard of late.

Problems in semiconductors pulled the NASDAQ down due to a report stating that the global sales of chip-making equipment showed its first year-on-year decline in 19 months. The software sector also came under pressure. Ericsson was the only tech bellwether to post a gain. QualComm led in losses with a steep 4.9-percent drop. JDS Uniphase, Yahoo! and Oracle each lost more than 2 percent, and five others were down by more than 1 percent. Only Sun Microsystems was spared a 1-percent loss, but its shares fell by a still-hefty 0.90 percent.

The decline in mortgage rates for the week ended April 8 increased mortgage applications. According to the Mortgage Bankers Association, applications to purchase rose 6.4 percent while refis increased by 5.6 percent.

For the day, the Dow 30 Industrial Index fell 104.04 points or 0.99 percent to end at 10,403.93; the NASDAQ Composite index lost 31.03 points or 1.55 percent to close at 1974.37, and the benchmark Standard & Poor's 500 Index was down 13.97 points or 1.18 percent to end at 1,173.79.

At 4:00 PM EST:

The 30-year Treasury bond was up down 7/32 in price with the yield rising to 4.68 percent.

The 10-year Treasury note was down 2/32 in price with the yield rising to 4.36 percent.

The 5-year Treasury note was up 2/32 in price with the yield falling to 4.01 percent.

AVERAGE mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year Conventional Fixed-Rate Mortgage was at 5.694 percent from 5.765 percent at Tuesday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.262 percent from 5.318 percent at Tuesday's close.

Coming Up

First-time unemployment claims for the week ended April 8 and Business Inventories and Sales for February are due out on Thursday. Weak or strong first-time claims could impact the markets, but earnings reports will also be a factor. Because yields on Treasuries remained low on Wednesday it is possible that mortgage rates could continue to creep down on select products.