Heading into the last day of a holiday-shortened week that has offered little guidance for bond markets, we see today's lack of major economic data as ample opportunity for "Friday volatility."  MBS prices are going to have to decide if they're holding above 105-00 in Fannie 3.0s and Treasuries may have to decide if they're trending higher in yield or in the ongoing process of breaking that trend. 

Then again, neither of those things necessarily MUST happen today.  Indeed, bond markets have proved in recent weeks that they're willing to sit in the corner and pout until their favorite show comes on.  It's just that it's getting kind of old!  Whatever the case, if volumes are light, we simply move on to the following week (which offers much more data), and try again to care about something other than FOMC or NFP.

If we're going to end up caring about something today, the contenders will really have to step up to the plate.  8:30am Producer Prices isn't a report we've paid any attention to for quite some time, and the current gameplan is to continue not paying any attention to inflation data until inflation data suggests that inflation is to be taken seriously.  This has nothing to do with an opinion about the theoretical importance of inflation/deflation and much more to do with the fact that markets simply haven't traded a PPI or CPI in recent memory.

That leaves Consumer Sentiment at 9:55am as the key data point, and that's not necessarily the report we want to be carrying the session.  Markets know this, and they also know that bond markets have been increasingly antsy.  So we have the choice to coast out uneventfully in light volume or to try to get something going.  In the case of the latter, the burden of motivation would fall to European headlines.  If we don't see a good level of connection between Euro headlines and bond markets early, we'll be ready for an extended lunch break beginning at 9:56am.