MBS RECAP: Lack of Data Today, Snowstorm Tomorrow Taking Toll on Participation

After  two weeks of elevated volumes and activity, today hearkened back to old-fashioned Mondays.  Participation was light, market movement was largely an overnight affair, and there was a general absence of interesting info during the domestic session.  While we will add a bit of economic data to the domestic calendar tomorrow, it's now looking like the weather in New York may be keeping financial market participation subdued yet again.

So what are the implications of thinner participation in capital markets?  If today was any indication, not much, but that's not always the case.  Generally speaking, decreased participation usually means that every dollar of trading that manages to occur has more than the average dollar's worth of impact when it comes to moving trading levels.  In other words, the skids are greased for volatility.  Thankfully, the volatility that arises due to light participation tends to favor a trading range as opposed to snowball sell-offs (or rallies, as the case may be).

Miscellaneous thoughts and observations:

- Treasuries continue to underperform European bond markets.  QE is obviously a big culprit, but this week we can at least entertain the possibility that there's some hesitation built into pricing due to the impending auction cycle and FOMC Announcement on Wednesday.  These aren't watershed events in light of last week's ECB news, but they're something.

- From a technical standpoint, that underperformance threatens to reinvigorate the bounce to higher yields that led into last week's ECB Announcement.  I would say that tomorrow would  be informative in that regard, but if participation is as light as it might be due to weather, we probably won't be able to draw any firm conclusions.