MBS Day Ahead: Light Economic Calendar, FOMC Minutes, and Potential Change in Trend

On the whole, 2014 has certainly seen a narrow range in rates, but within that broader range, we've still been able to witness distinct trends.  For instance, rates were sideways to slightly higher in February and March, then moved convincingly lower in April and May. 

June was technically higher, but with a strong mid-month ceiling and end-of-month improvements.  Now the first few days in July threaten to combine with June's slight weakness and form the 3rd distinct trend of the year.

There won't be much to inform trend formation this week as the only significant events are the several Fed speeches that dot the calendar as well as the Minutes from the most recent policy meeting.  Even then, Fed policy isn't hotly debated at the moment, and the last meeting/announcement didn't elicit much of a reaction. 

When domestic markets are short on inspiration, overseas markets can have a bigger impact.  European bond markets in particular have been important to the US rate outlook so far this year--probably doing more than anything else to keep rising rates in check.  That said, Treasuries have shown an increased willingness to widen their gap to German Bunds (the EU's 10yr benchmark).  The first few days of July saw the gap at it's widest since the 1990's (before the Euro currency was even adopted by many member states).

There's no predictive implication here--simply something to keep in mind.  The two implied conclusions are as follows:

1. To whatever extent rates in the Eurozone stay depressed, it will likely continue to prevent any runaway spike in US rates.

2. To whatever extent rates in the Eurozone are able to bounce, US rates will likely be happy to do the same.