The Day Ahead: Busiest Day Of Data And Fed Speakers Before Silent Friday

Wednesday's data proved to be largely inconsequential, either because it wasn't what bond markets were interested in or simply because they were more interested in other things (and most likely, not much interested at all!).  Even so, MBS added just over a quarter of a point, moving up to the pre-QE3 all-time highs.  10yr yields got as low as they've been since the QE3 announcement volatility. 

With the caveat being that the week's volume has been low enough to disregard technical developments, here's where we see this week's technical developments (hey!  There's not much going on, so this is what we're watching until it breaks):

Couple things about the above charts:

1. Yes, these are 10yr yields and yes, we're aware that QE3 targeted MBS and resulted in drastic outperformance, but after the initial shock to MBS vs Treasury spreads, things have since leveled out.  Even if they don't remain level, we're still most interested in the broader bond market trends inasmuch as they can warn against any major risks to production MBS coupons.  Thankfully, it would take severe weakness in Treasuries for Fannie 3.0s to give up their "production coupon" title belt. 

2. No attempts to predict the future here... Simply pointing out the obvious trends that have developed and letting you know what we're watching (as long as it continues to be relevant)

3. If these trends are broken, we'll reassess.

4. Yes, we realize that the longer term chart points toward 2.0 - 2.1% by the end of the year.  If all news and data ceased from this moment on, that's where inertia would carry us, though we don't imagine MBS would be keen to follow as weak a path.

So for today, we're essentially waiting to see if the prevailing downtrend in yields holds (the red line in the chart above).  Helping guide the process will be a more robust offering of overnight data from Europe as well as the most meaningful domestic economic data of the week with Jobless Claims, Philly Fed and the Markit Purchasing Managers Index.  Sprinkled heavily around the data is a busy calendar of Fed Speakers including Rosengren, Lockhart, Kocherlakota, Pianalto, and Bullard.