MBS Live Day Ahead: What Does it Take to Move Markets These Days?

In the day just passed, bonds drifted through one of those characteristic summertime Mondays without any meaningful liquidity, volume, or volatility.  Bonds remained inside their prevailing range.  In fact, they were nearly glued to the perfect center of the consolidation pattern of the past 2 months at 2.06-ish.  In general, it was an inconsequential day seen as markets way of punting and/or biding time ahead of this week's more significant events.

In the day ahead, bonds may end up doing exactly the same thing, but with just a bit more feeling.  Today at least brought some economic reports, but they haven't been able to move markets in any major way.  The overall trading range is not appreciably wider than yesterday's.  Both are the narrowest in more than a week.

So what does it take to move markets these days?  We've been talking quite a bit about tomorrow's FOMC Announcement and indeed, that's a good bet.  Economic data and foreign central bank updates can have an impact as well, but those impacts are experienced differently depending on the market in question.  Today's chart shows 10yr yields set against Fed Funds Futures, both for this next meeting ("by Aug 2019") and for the whole year ("by Jan 2020").

It's interesting to see which type of news garners responses in the respective markets.  Here are my quick chronological notes/observations:

1. Both bonds and futures were noticeably affected by NFP.  Futures feared it would decrease the likelihood of rate cuts.
2. Futures almost fully reversed that fear when Powell said NFP didn't derail a rate cut (very logical!).  But 10s didn't rally nearly as much.  After all, 10s reflect a lot more than the Fed Funds Rate in the shorter-term.  This is our first evidence (in this chart) of the market's predisposition to give the most weight to the Fed when it comes to Fed Funds expectations (go figure!).
3. Strong econ data and a weak 30yr bond auction logically hit Treasuries more than Fed Funds because they don't really do much to change the rate cut likelihood.  Also logical is the fact that 2020 futures moved much more (because the data REALLY don't affect July's rate cut potential).
4. Our 2nd big piece of evidence regarding Fed Funds Futures caring MUCH more about Fed speakers than 10yr Treasuries.  There are two sets of arrows for Williams because he initially gave the impression that the Fed could cut 50bps this month (hence the HUGE surge lower in "by August" rate expectations) then walked those comments back the next day.  
5. The ECB announcement (and Draghi press conference) is just thrown in so we can see the relative impact on US markets--more of a curiosity than anything.

The takeaway here is that, while the Fed can cause plenty of volatility inside a range, it's really up to the big-ticket economic data to set trends.  It's when the data agree in one strong direction and the Fed confirms a change in their stance as a result that we'd see the biggest moves.