MBS MID-DAY: General Anxiety for Bond Markets or a Specific Phobia?

Fannie 3.5s are down 10/32nds from yesterday's latest levels.  Keep in mind that today's prices reflect October coupons whereas yesterday's were based on September.  These two coupons were always about 10/32nds apart, making the total price change look like 20/32nds.  Again, that's only the case when comparing October to September.  The actual amount of weakness is the 10/32nds. 

Are bond markets generally anxious due to a laundry list of equally important factors or is there one factor that's weighing more than the others?  It's impossible to know for sure, but what we do know is that if there is one overarching factor, it's likely next week's FOMC Announcement and the speculation that the Fed will change the verbiage surrounding rate-hike timing. 

An entire week is a long time to wait just to confirm or rule out that possibility, but simply being aware of it does us some good.  The fact that so many market participants are on board with this specific fear makes a great argument for staying defensive and cautious until then. With that much consensus on a source of bond market anxiety, a triumphant bounce back to stronger territory is a very tall order.

The only hope at this point would be for bond markets to lose even more ground, meet firm technical support, and bounce back on opportunistic "bargain-buying."  Without that, the day to day events won't be able to accomplish much on their own.  One example is this afternoon's 10yr Treasury auction coming up at 1pm.  While it could certainly elicit a response, there's almost no chance it will be a game-changer.