Last week, bond markets shot the moon by improving substantially even when the odds were stacked against them.  Those stacked odds consisted of stronger-than-expected economic data and a negative technical environment (meaning the mathematical studies applied to recent movement in bond markets suggested weakness was more likely).

While technical indicators alone can be very hit and miss, when they're accompanied by economic data that supports similar conclusions, we start getting into a level of probability that's hard to bet against.  Yet betting against it would have been a winner last week. 

If today's data is similarly strong, however, betting against the logical outcome is even more of a long-shot.  The reason for this is twofold, but focuses on Europe.  Last week's x-factor was the European bond market rally in response to rapidly materializing prospects for some form of easing in the upcoming meeting. 

This time around, while markets still haven't ruled out action from the ECB (European Central Bank), it's notably less gung-ho this week.  How do we know?  Simple!  Yesterday morning, Germany had a FAILED bond auction!  There were only enough bids to cover 75% of the auction amount!  No one wants to own yields that low right now!  (Well, except maybe those 75%).

Considering the message sent by that auction along with some light backpeddaling among ECB officials this week, at the very least, we can assume we won't get a miraculous boost from the same place this week.  That's the thing about miraculous boosts though... they're less miraculous if you can predict where they come from.

The supporting evidence against another shooting of the moon is the same as it was last time with respect to the technical outlook.  It has once again turned a bit bearish.  The caveat here is that the economic data would need to be strong to reallykeep these negative trends intact.

2014-5-21 Treasury Techs

With that in mind, one of the morning's reports may already be set up to look strong.  Analysts are generally down on housing, but today's Existing Home Sales report is only expected to improve by a little more than half as much as it should based on its relationship with Pending Home Sales.  Note in the chart below that the green line begins to lift off with the last reading of the data.  The orange line (today's data), is expected to move the same direction, but not nearly by the same amount.  Some would argue that sets it up for an easy "beat."

2014-5-21 EHS

On a final note, keep in mind that today's instance of Jobless Claims covers the week used in the Establishment Survey conducted by the BLS--the thing that determines what the upcoming Nonfarm Payrolls number will be.  This is referred to as "survey week Claims" and is generally considered the most important reading of Jobless Claims each month.  Bottom line, if it moves big in either direction, markets may react more than normal.

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
98-12 : +0-00
FNMA 3.5
102-17 : +0-00
FNMA 4.0
105-19 : +0-00
2 YR
0.3466 : +0.0076
10 YR
2.5428 : +0.0068
30 YR
3.4135 : -0.0025
Pricing as of 5/22/14 7:51AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Thursday, May 22
8:30 Initial Jobless Claims (k)* w/e 310 297
10:00 Existing home sales (ml)* Apr 4.68 4.59