Things are frustrating right now for bond markets.  Somehow, October has managed to be one of the weakest months of the past two years, yet has earned that status via a fairly sneaky game of what we'll call "lulls and pops."  To clarify, the entire first half of the month could be divided into two discreet but similar pieces, each with a calming, soothing LULL in the price action followed by a significant POP into weaker territory. 

Those lulls served to calm fears about the trend for the month shaping up like ugly Octobers past, while the pops were brief enough as to mask the fact that we were weakening overall.  To really put a fine point on this "lully-poppy" behavior (you had to have seen that one coming...), we'd point out that down days versus up days have been in equal supply so far this month (9 of each) yet we're off over a point and a half in Fannie 3.0s and up about 20bps in 10yr yields. 

Despite the weakness on the month, the road there could have been a lot bumpier.  Last year, for example, even though 10yr yields rose by roughly the same amount over the course of the month, they traded a whopping 70bp range in the process (1.71-ish to 2.42-ish).  And while the current month isn't over yet, we don't think that GDP and the first few days of next week will be able to create that kind of volatility.

That doesn't mean that we're immune from further weakness though, and this is the reason that things feel somewhat frustrating at the moment: Bond Markets haven't been clear in conveying their recent biases, motivations, hopes, dreams, or fears.  Reading significance into EU Summits and FOMC Announcements proved to be an exercise in swinging and missing, ultimately forcing us to resign to shrugging and pointing towards earnings season, elections, and whatever else we can find on the horizon that seems more significant than the ground underfoot. 

Today's ground underfoot is the first look at GDP for the third quarter.  Given that bond markets are resting close to some fairly serious long term technical levels, we'll fall for the same old trap and head into this one with a healthy respect for its potential importance, but are fully prepared for it to set up another lull heading into next week's NFP.  If no lull, and if we're moving weaker following GDP, then things get progressively more serious.