Despite an abundance of economic data yesterday, domestic bond markets were instead focused on navigating trading ranges past and present.  The strongest cues came not from generally stronger-than-expected economic reports, but rather from the convulsive fixed-income rally in Europe.  Whether it's rotten economic data or imminent threat of quantitative easing, European bond markets have been the most convicted show in town.  Meanwhile, domestic bond markets are only now getting over their identity crisis in the past few days.

The affectionately-termed identity crisis had to do with a handful of reason that rates were resisting the most widely-predicted move higher and another handful of reasons to resist a move lower (I talked a bit more about this stalemate HERE).  With the forces of good and evil evenly matched, a narrow trading range has been the norm for an uncharacteristically long time.  Interestingly enough, now that it's breaking, the next question is whether or not we'll soon see a meaningful break of the even more significant range boundary at 2.47 in 10yr yields, which separates the entire era of Eurozone crisis + domestic QE equaling the lowest, most stable interest rate environment in the history of US government debt.  It's a big deal.

2014-5-15 tsy range

"Big deals" aren't sorted out in a day, and neither does yesterday's bounce at 2.47 close the case on the current movement.  That said, the more that yields are moving higher from 2.47, especially if we happen to bounce there again, the more cautious we should be about a pull-back to the previous range.  Certainly, momentum is on our side for now, but if it happens to shift with 2.47 as the trough, it could make the shift more abrupt.

Today's only significant data is Housing Starts at 8:30am.  Consumer Sentiment is out at 9:55am, but markets haven't traded that very actively in the past several months.  Housing, on the other hand, is a hot topic, and the Housing Starts data is one of the reports that stands the best chance at making a case for a slow, steady recovery (minus a few outliers standing out against the underlying trend).

2014-5-15 housing starts

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
98-17 : +0-00
FNMA 3.5
102-18 : +0-00
FNMA 4.0
105-15 : +0-00
2 YR
0.3548 : -0.0042
10 YR
2.4982 : -0.0038
30 YR
3.3303 : -0.0077
Pricing as of 5/16/14 7:54AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
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