The Day Ahead: First Significant Econ Data and Last Treasury Auction

Yesterday

- Treasuries somewhat weaker overnight, much weaker in afternoon

- Budget deal talk, weak auction, technical shift all weighed

- MBS were tame until after 10yr Auction, weakness and reprices afterward

- Fannie 4.0s lost about half a point, rate sheets gave up most of post-NFP improvement

Today

- Data finally arrives with Retail Sales and Jobless Claims

- Not showstoppers, but certainly capable of setting the tone

- 30yr Bond Auction at 1pm is relevant as well

- Despite morning data, 1pm is the "make or break" time of day

Strategy

In general, Treasury auctions haven't elicited as much reaction on the part of MBS as they did back in 2008-2010 when markets were still feeling out the new normal of the QE era.  Now as that era prepares for its most fundamental shift, auction results may begin offering more clues for traders, both in Treasuries themselves and in MBS.

That's far from conclusive, but yesterday's 10yr Auction definitely had more of an old school impact.  The other justifications for this would be that it happened to be a bearish event in an afternoon where bonds were already in the process of a technical correction (right time, right place), or that it's just a lot of supply for a very slow time of year ahead of a very big FOMC Announcement next week.

Whatever the case may be, we have one more auction to get through today with the 30yr Bond at 1pm.  As the last auction of the week, it not only carries the potential to move markets of it's own accord, but also because its passing means that the week's larger supply considerations have passed. 

Before that, we'll see the week's first meaningful economic data, twice!  After a silent week so far, we get both Retail Sales and Jobless Claims at 8:30am.  At current levels, or something reasonably close to them, it feels like bond markets are fairly well hunkered down for next week's FOMC Announcement, but the recent highs and lows have set up a range.  Cohesively strong or week data could push us to either side of that range ahead of Wednesday's announcement.