MBS MID-DAY: Another Light Day ahead of FOMC; Paradoxical Data Reaction

As expected, not much is going on today as the focus remains on tomorrow's FOMC events.  Overnight volumes and participation levels were light for the 2nd straight day, though things have picked up just a bit from yesterday (which was the lightest session of the year).  Still, the general trend was positive.  Treasuries have been outperforming European bonds so far this week, which seems like a significant commentary on the underlying predisposition to remain in this sub 2.15% range in 10yr yields.

It's not that rates wouldn't be willing to move back up, but that probably depends on tomorrow's FOMC Announcement, press conference, and forecasts.  With 10's at 2.05% today, they're right in the middle of a long term inflection zone--certainly one of the top 3 inflection points of the current low rate era (the others being 2.34 and 1.84, and immediate vicinities).

What does all this mean?  Simply that bond markets have been honing in on levels that have allowed them to be nimble and adaptive in the past.  It's akin to 50 yard line seat. 

Their desire to be here was made all the more obvious by the lack of a reaction to this morning's data.  I saw a few headlines that actually credited the weaker Housing Starts number for today's bond rally.  That's odd considering rates generally moved higher right after the data.  Volume suggests markets didn't much care where Housing Starts came out this morning.