MBS Day Ahead: The Only Games in Town are FOMC Minutes and Headline-Watching

Bond markets have endured 2 days of losses so far this week.  Both days have also been prime examples of illiquid summertime trading.  This simply means that there are few warm bodies at trade desks, fewer hours being worked, less interest in winning mental chess matches against other traders, and more interest in simply surviving to trade in the more liquid months ahead.  The phrase "going through the motions" applies fairly well.

The most recent positive motion last week took 10yr yields to the lower end of their current trend of improvement.  Interestingly enough, if 10's had gone any lower to start this week, they would have been breaking out of this trend.  Additionally, the move higher has only barely made it half-way back to the other side of the trend.  In other words, there's still hope, though it never feels that way after back-to-back bad days.

Whether or not today is another bad day will be based largely on the Fed and on Ukraine headline potential.  As for the headlines, that one is fairly self-explanatory and not scheduled.  Basically, we'd just be on the lookout for headlines that clearly suggest things are getting better or worse in Ukraine.

As for the Fed, today brings the release of the Minutes from the most recent policy meeting.  This is not the Fed's official policy statement, but rather offers additional context to the meeting in which the last policy statement was crafted.  In terms of market movement potential, the Minutes can occasionally be a  total dud. On some occasions they've been among the biggest market movers among all scheduled events. This tends to happen when markets perceive a shift in Fed policy. Such shifts are usually hinted at in the Minutes before making into the policy statement.