The Week Ahead: Treasury Auctions and Housing Data vs Summertime

The past few weeks have made it look increasingly possible that bond markets have already set the boundaries of trading ranges with the FOMC events in late June and Employment data in early July (see chart below).  In terms of 10yr yields, that's a range of 2.36 to 2.75.  While the lower end of that range is much closer to current trading levels, it's thus far been blocked by the significant late June inflection point at 2.46.  With next week bringing new instances of the FOMC Announcement and Nonfarm Payrolls that established this range, the current week would be hard-pressed to meaningfully challenge either side of the range.

This week's data includes several Housing Market metrics.  Existing Home Sales is the only piece of significant data on Monday morning, and is expected to show an improvement in the annualized rate of sales from 5.18 million to 5.26 million.  Again on Tuesday, Housing data is the only morning fare with Monthly Home Prices at 9am.  This isn't a significant piece of data in general but is also stale by the time it's reported (May report on July 23rd).  Tuesday does, however, begin the week's Treasury Auction cycle in the afternoon.  2yr Notes are less relevant to MBS markets than the other auctions this week, but whereas they use to be irrelevant, they're starting to have an impact on the longer end of the yield curve again.

Housing and mortgage data wraps up on Wednesday morning with the non-market-moving (but interesting) MBA Applications at 7am and the more relevant New Home Sales report at 10am, expected to increase from 476k to a 485k annual pace.  The 5yr Treasury auction hits at 1pm, and has more of a chance to move markets in such a way that MBS would care than the 2yr Auction.  Thursday's 7yr Auction is roughly in the same category, but although it's a longer duration, 7's are more a matter of housekeeping than 5's.  There's less of a market for them, less volume, and a crazy 7yr Auction would likely have less of an impact than a crazy 5yr auction.  Consumer Sentiment is the only other piece of significant data hitting for the week at 9:55am the following morning.

More important than horse-trading 5's vs 7's or other economic data is the fact that the June/July drama seen so far, goes against the inherent nature of bond markets in the summertime.  In other words, there has been actual convicted trading of extremely significant data and events in the summer months.  While this can happen, market participants tend to be less tuned in unless absolutely necessary.   The implication is that 'nothing really matters' until next week's events.  That leaves MBS watchers more resigned to watching and reacting to smaller, less convicted movements that stand a chance to be completely undone depending on the outcome of next week.