MBS Live Week Ahead: Last Week of Summer For Bonds

Even though quite a few kids are going back to school today, there's still one week of Summer remaining for the bond market.  Labor Day (this upcoming weekend) is a major dividing line.  It marks the shifting of gears back into a more serious and focused frame of mind after a few months of being on autopilot.  Given the established rarity of big-picture momentum during those months, it's no surprise to see that we've been moving sharply sideways in a range that's not even 20bps wide in 10yr yields.

There's a case to be made for viewing the technicals and the range boundaries as largely irrelevant at this time of year.  Reason being: the next trend that ends up taking shape (as soon as next week) historically doesn't care what went on during July/August.  It's more likely to be driven by hard data, events, and policy developments (both fiscal and monetary).

If all of the above doesn't convince you to tune out this week, we can talk about a few of the events that might move the needle.  The obvious candidates for upper tier data include GDP on Wednesday, PCE on Thursday, and Chicago PMI on Friday.  Admittedly though, that's a pretty weak line-up when it comes to potential market movers.  I might include Pending Home Sales on Wednesday as a dark horse market mover, considering the increasing scrutiny on the housing market (even the Fed mentioned it as a concern/risk last week).

Away from econ data, the Treasury auctions are in the lesser of their two cycles with 2s, 5s, and 7s.  These aren't likely to cause a stir, but they do emphasize a point.  The point is the sanctity of Labor Day weekend.  Friday is not even designated as a half-day (the previous 3 holidays all get a bonus half-day in addition to a full day closure for the official observance, but the subsequent 3 Fall holidays--Labor, Columbus, and Veterans--do not).  As such, there's no real reason to change the typical Tue-Thu schedule for the auctions, but they've nonetheless been moved forward to Mon-Wed.