For most of 2013, the mission was clear for bond markets. It mostly involved rapid selling and significant amounts of pain for any fans of low interest rates. After a brief correction pulling back from multi year highs to begin 2014, bonds have been ridiculously sideways. 10yr yields (a better proxy for overall momentum in the interest rate world, despite MBS being more germane for day-to-day changes in mortgage rates) have scarcely moved outside a 2.6-2.8 range since mid January. Compared to what preceded it, the range has been so narrow and sideways as to be somewhat spooky.
Why spooky? It's not much different than the "quiet, too quiet" cliche in movies. It usually means something more exciting is about to happen (high probability bet there, because anything is more exciting than sideways!) and when things start moving, they could move in an unfriendly direction.
All that having been said, the last times things were this sideways, they stayed that way for nearly twice as long. So another aspect of the 'spookiness' is the 'not-knowing' when it will come to an end.
The week ahead will offer up a few items that will try to start markets moving away from the sideways stance. As always, Friday's Employment Situation Report (aka "NFP" for the Nonfarm Payrolls component) is the most important event of any week in which it appears, but there will be opportunities for markets to take early cues leading up to it.
Today's only significant piece of economic data is Chicago PMI at 9:45am, though Yellen speaks 10 minutes later. Markets would love to hear more of her thoughts on rate hike timing.
Tuesday gets more serious with ISM Manufacturing at 10am, one of the biggest market movers apart from NFP. Construction Spending is out at the same time, but inconsequential compared to ISM.
As is customary for the Wednesday before an NFP Friday, ADP releases their Employment Report at 8:15am. After putting in solid performances in 2013 after a methodology revision in late 2012, the ADP numbers haven't been as reliable of late. Our best sense is that markets will still react to a big beat or miss, but perhaps not as much as they might have 3-4 months ago.
Data continues apace on Thursday with the headline being ISM Non-Manufacturing at 10am. Before that, the European Central Bank rate announcement at 745am and press conference with ECB President Draghi has a chance to impart some early momentum.
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