MBS Day Ahead: Economic Calendar Picks Up but Markets Mostly Waiting for Fed

Beginning last Thursday, Treasuries and MBS have increasingly gone through the motions of consolidation ahead of tomorrow's FOMC Announcement.  Interestingly enough, the same "gap" that we were focused on as an important area for 10yr yields didn't turn out to offer a big bounce or break, but instead turned on the tractor beam and pulled yields ever closer. 

If we take a step back from shorter term trends, it ends up being not too much of a surprise to see yields hovering near this fence days before the probable end of QE3.  This is a range of yields that's essentially served as a dividing line between the best of times and everything else for bond markets.  The following chart makes it apparent that it's NOT a level that yields tend to move through carelessly. 

The takeaway is that October still runs the risk of looking like late 2008 from a technical standpoint.  Ideally, we'd like to see a sustained break below 2.3.  While that's no guarantee that history will repeat itself, the historical precedent is nothing but a low rate dream come true. 

With all that apparently on the line this week, today's economic data is a distant second fiddle to Wednesday's FOMC Announcement and subsequent market reaction (which could be an ongoing process lasting through the end of the week).   Of the several reports, the two biggies are Durable Goods at 830am and Consumer Confidence at 10am.  That said, it wouldn't be a surprise if neither of them produced meaningful movement.