Yesterday was a complete non-starter except inasmuch as it started to go sideways shortly after the open and never looked back. Traders were trading, but not like there were any goals or pressing needs.
With the rest of the week continuing to be relatively light in terms of scheduled events, it's not a given that we'll see much conviction, though odds improve by Thursday. From a technical standpoint--that is, with respect to what the trading levels are telling us in and of themselves--rates used last week to exit the aggressive rally of the previous 2-3 weeks. From there, they moved to 'crossroads' levels, leaving themselves room to rejoin 2014's dominant sideways trend, or to head back to late May levels. Several technical studies (seen in points 1, 2, and 3 below) are still at least a day away from giving off any positive signals, leaving the outlook in limbo:
If bond markets are going to muster the energy to attempt turning the tide in this chart, they'll have to do it with limited help from the event calendar. Today is better than yesterday though.
For starters, Europe is back in action after a holiday yesterday (it didn't shut down markets, but sapped some participation). From there, the morning data is perhaps microscopically interesting thanks to Wholesale Sales/Inventories (because inventories are a hot topic, even though this isn't the inventories data that affects GDP).
The afternoon brings the start of the Treasury Auction cycle. 3yr Notes are first up, and although their the least interesting from an MBS perspective, it's a step in the right direction as far as getting markets woken up for the week. In terms of MBS-specific events, tonight is "the roll," where June MBS will no longer be eligible for trade. While this can sometimes lead to outperformance in MBS vs Treasuries, the most noticeable feature is that, with June retired, Fannie and Freddie 30yr Fixed MBS Prices will now be based on July coupons. Because the trailing month tends to trade at a 8-12 tick discount, this makes it look like prices drop 8-12 ticks on the night of the roll. They do not.
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