If the two key considerations for bond markets these days are Europe and FOMC Policy, and if the first three days of the week favored one over the other, then Friday will go a long way toward making up for it--at least it could, given the line up of data.  In other words, the successive days of rallying into record low territory for US Treasuries have largely been a factor of accelerating Euro-meltdown concerns.  If it's not Greece, it's Spain, and if not them, then maybe it's Greece again, or Italy, or I don't know, but sell Euros!  Buy Treasuries!  Arrrgh!  

But even if the European component of the recent market malaise is the larger consideration, the Fed Policy component remains significant.  The Fed's as much as told us that further easing is contingent on the evolving domestic economic picture.  Yeah... That's sorta taken a turn for the worse in May, so maybe there's a bit more fuel to the EU fire than everyone might think from the secretly burgeoning expectations of Fed Policy shift.  

This 'stealth' underpinning of the rally is in it's heyday thanks to the absence of the usual ebbs and flows in near-term betting on how the Fed will move rates, because, well...  The Fed hasn't moved rates, Fed Funds are at 0, and the Fed told us how long they expect rates to be low.  Really, its an unprecedented time, and like so many U2's in 1959, these modern day "Fedspectations" have been able to fly under (or over, as the case may be) the radar, because there's no way to be certain exactly what they are until they're shot down.

In this version of the story, they might not be shot down at all if "NFP and Friends" have something to say about it.  Actually, we don't know what this morning's economic data will end up doing to Fedspectations (that's "expectations of further Fed easing," or something like that, for those of you I've lost), but we'd imagine that a 'bad enough' NFP that's either bolstered or simply not refuted too strongly by the morning's other data, has a decent enough chance to all but cement the belief that the Fed will ratchet up policy in the next announcement later on June 20th.

What might that look like in terms of 10yr yields?  Today is a big playing field with the first major supportive pivot at 1.61, followed by 1.655, 1.69, and 1.75.  Want to give the psychology nod to 1.50 on the aggressive side?  That's fine, and we can't argue that it could come into play from a psychological standpoint, but in historical examples of big rally days that follow 2 previous rally days, all while operating near long-term lows, things could go much further.  Mind you, this would require awful data and maybe some help from Europe, but high 1.3's aren't out of the question.

So there you have it, a 35bp+ range, but thought of in another way, either extreme is less than 20bps from current levels, a perfectly normal amount of movement for an extreme day.  For MBS's part, we hope to not see too much movement in either direction as the mortgage world is not a big fan of the volatility.  If things are sideways-ish after the 8:30am data (NFP and Incomes/Outlays) then there's the not-insignificant 10am offerings: ISM Manufacturing and Construction Spending to help tip the scales.  For the record, if we come to one of those "scale tipping" type scenarios, don't expect the 10am data to push markets to either end of the spectrum.  That would take a concerted effort on all fronts.