Over the weekend, events that have been labelled by some as 'referendums' took place in several of the most embattled regions in Ukraine.  Not surprisingly, most of those willing to participate voted to leave Ukraine and be annexed by Russia, but the counterpoints are so profound (armed pro-Russian separatists presiding over clear ballot boxes, seriously) that it all but ensures no quick end to the geopolitical risk that has had an ongoing effect of some unknown magnitude on financial markets. 

Bond markets in particular are actively considering that there may be no quick end to the ongoing range-trade, denoted by 10yr Treasury yields between roughly 2.6 and 2.8.  The absolutely lower bound of that range is 2.57, set in early February.  It was tested on several occasions last week, but never breached.

2014-5-11 tsy range

As we discussed on Friday morning, those bounces also coincided with a negative shift in several of the mainstream technical studies.  For all intents and purposes, this makes a move higher in yield seem like a no-brainer--at least in the short term.  There's a catch though.

Thinking back to NFP Friday, we saw a pretty remarkable bounce back into positive territory for bond markets, following a much stronger-than-expected jobs report.  Several media outlets did a good job of pointing out the internal weakness in the data, but ultimately, no amount of internal weakness in the Employment Situation can make a 78k beat (nonfarm payrolls came in at 288k vs a 210k forecast) result in bond market gains without some assistance. 

At the time, the only assistance to be found was from geopolitical headlines, but in the subsequent days, we had far more meaningful headlines regarding Ukraine with far less of an impact.  Conclusion: bond markets had other reasons to be "doing their own thing," and these transcended deeper readings on the data, geopolitical risk, and technical factors.

That casts  some doubt as to where we should look for the best guidance this week.  Economic data will probably matter, but we can't assume it will matter the most.  Same story with Ukraine-related headlines and Fed speeches.  We have all of the above coming in this week in varying amounts. 

On the economic data front, The first major report of the week is Retail Sales on Tuesday.  On the same day, Business Inventories is also moderately important due to it's impact on GDP revision forecasts.  The NAHB's Housing Market Index is out on Wednesday, but it's not typically a major market mover.  Thursday is certainly the busiest day of the week with Consumer Prices, Jobless Claims and Empire State Manufacturing all at 8:30am, Industrial Production at 9:15am and the Philly Fed Survey at 10am.  There are also several Fed speeches, including heavy-hitters Yellen and Dudley.   Friday wraps up with the not-insignificant Housing Starts data and the not-very-significant Consumer Sentiment data.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
97-22 : +0-00
FNMA 3.5
101-26 : +0-00
FNMA 4.0
104-29 : +0-00
2 YR
0.3950 : +0.0120
10 YR
2.6395 : +0.0165
30 YR
3.4813 : +0.0153
Pricing as of 5/12/14 7:51AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Tuesday, May 13
8:30 Import prices mm (%)* Apr 0.3 0.6
8:30 Export prices mm (%)* Apr 0.3 0.8
8:30 Retail sales mm (%)* Apr 0.4 1.2
10:00 Business inventories mm (% ) Mar 0.4 0.4
Wednesday, May 14
7:00 Mortgage Market Index w/e 350.9
Thursday, May 15
8:30 CPI mm, sa (%)* Apr 0.3 0.2
8:30 NY Fed manufacturing * May 5.00 1.29
8:30 Initial Jobless Claims (k)* w/e 320 319
10:00 NAHB housing market indx * May 49 47
10:00 Philly Fed Business Index * May 14.0 16.6
Friday, May 16
8:30 Housing starts number mm (ml)* Apr 0.980 0.946
8:30 Building permits: number (ml)* Apr 1.010 0.997
9:55 U.Mich sentiment * May 84.5 84.1