The Day Ahead: Data And Auctions Get More Meaningful

The first two days of the week have been largely silent and largely positive for MBS and Treasuries.  During that time, it seems to have been equities markets, as much as anything, providing guidance--good, old-fashioned "stock lever!"  That correlation is more of a symptom than a root cause, however, as bond markets are merely latching on to the broader currents of "risk-on vs risk off" as we await bigger events.

To that end, Wednesday delivers where the previous two days have failed, and in almost every way.  The contrast is so stark in several categories that bullet points may be required to enumerate them.  Yes, let's do that:

1. Domestic Economic Data

SO FAR THIS WEEK: There's been next to nothing reported.  Ok, so Richmond Fed... It missed big and no one batted an eyelash, next!

WEDNESDAY'S DIFFERENT BECAUSE: Not only does Wednesday bring more important economic data to the table, it does so in greater amounts, including New Home Sales, FHFA Home Prices, and Markit PMI

2. FOMC Related News

SO FAR THIS WEEK: None.  Even the scheduled appearance from Janet Yellen contained no comment on monetary policy

WEDNESDAY'S DIFFERENT BECAUSE: Today brings the official FOMC Announcement... The first one since QE3 was announced.  Granted, most market participants aren't expecting much, but to whatever extent QE3 has been important for mortgage markets, all future FOMC Announcements are also important in that they'll play a role in shaping the evolution and ultimately, the demise of Fed MBS buying.  To be clear, we don't think "demise" is even a gleam in the Fed's eye at today's meeting, but anything that helps chart the course more clearly is important.

3. European Data and Events

SO FAR THIS WEEK: Europe has been fairly quiet so far, though a few EU-related headlines have ostensibly contributed to the risk-on vs. risk-off undercurrents provided by stock markets

WEDNESDAY'S DIFFERENT BECAUSE: There's much more European data out overnight including the Euro Zone Markit PMI's for October ("purchasing managers indexes"...  a measure of the manufacturing sector) as well as a potential important meeting between ECB President Mario Draghi and German leaders to address concerns about the recently announced OMT bond buying program.

4. Treasury Auction Cycle

SO FAR THIS WEEK: We've only had 2yr Notes and despite the impressive reception, 2's just aren't the market movers they used to be

WEDNESDAY'S DIFFERENT BECAUSE: Granted, it's not as pressing as say, a 10yr Note Auction, but today's 5yr Notes have significantly more potential than 2's to register an impact on bond markets and ultimately on MBS.

In addition to all that "stuff," there's the ongoing contribution from earnings season.  We can't really say that Wednesday will be hugely different than previous days of the week in that regard, but it's yet another factor to add to the pile of potential market movers.