MBS Live Recap: Inconsequential Volatility Inside a Range

Bonds began the day roughly unchanged and rallied in the morning hours along with European bond markets.  Most of the volume was in before 9:45 and the remainder of the day's trading took place inside the range set during the preceding 90 minutes (effective, the first 90 minutes of domestic trading).  That's the market's way of telling you it's tuned out.

With the ECB having punted on their opportunity to address tapering, bond markets are at a bit of a loss when it comes to motivation.  Normally, if a central bank was expected to say something about tapering and then said nothing about it, that would be a good thing for bond markets.  Instead, ECB President Draghi said "nothing lasts forever," and further suggested that we'd hear more at the December meeting.  

Thus, what could have been a statement to the effect of "we're not tapering," was instead taken as "we're not tapering yet, and we'll tell you what we've decided in about 6 weeks."  

That makes the next 6 weeks a confusing time to take a stand as a bond trader.  You could bet on the ECB announcing another extension by buying more bonds.  You could bet that they'll at least officially introduce a framework for tapering by selling bonds.  Or you could wait and see how it all shakes out by trying to stay more neutral and not going for any big scores.  Option 3 is the only logical answer until/unless something changes, and it's evident in the volume and volatility that have followed yesterday's ECB news (none and none, respectively).