The conventional wisdom regarding falling knives is to avoid trying to catch them.  2014's bond yields have been a quintessential example.  At each major inflection point, investors have reached out to bet on rates moving back up only to find they reached too soon.

The last occasion was after 10yr yields hit 2.34--certainly an important big-picture inflection point.  Bond markets digested a mid-September FOMC Announcement without losing much ground.  By that Friday, the lack absence of any material weakness in European markets made it clear that Treasuries were offsides.  Domestic bond markets quickly fell back into line. 

2014-12-14 bunds

To reiterate, from a technical perspective, the visit to 2.34 may have acted as a cue for a shift in positions.  In any event, it's notable that positions became imbalanced immediately thereafter. 

Why bring all this up?  Because 2.07, or thereabouts, is the next inflection point that's in the same league as 2.34, and we bounced right there on multiple occasions on Friday.  Combine that with the fact that everyone seems to think bond markets can only improve right now (dangerous thinking, even if the only penalty ends up being a brief counter-trend movement), and there's an increased risk that this becomes the scene of another technical pull-back. 

2014-12-14 pivot

Heading into this week, a pull-back is probably the safer baseline, with any unaccounted-for strength acting to firmly reiterate what we think we already know about global financial markets: things are fairly precarious, and core bond markets will generally benefit from that as long as it continues to be the case.

There's a good amount of economic data on tap right from the outset.  The highlight is on Wednesday, with the afternoon's FOMC events.  These include the Statement itself, the Economic Projections, and the press conference with Fed Chair Yellen to follow.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.0
101-09 : +0-00
FNMA 3.5
104-11 : +0-00
FNMA 4.0
106-22 : +0-00
Treasuries
2 YR
0.5800 : +0.0359
10 YR
2.1250 : +0.0415
30 YR
2.7710 : +0.0301
Pricing as of 12/15/14 7:30AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Monday, Dec 15
8:30 NY Fed manufacturing * Dec 12.40 10.16
9:15 Industrial output mm (%) Nov 0.7 -0.1
9:15 Capacity utilization mm (%) Nov 79.3 78.9
10:00 NAHB housing market indx * Dec 58 58
Tuesday, Dec 16
8:30 Housing starts number mm (ml)* Nov 1.040 1.009
8:30 Building permits: number (ml)* Nov 1.060 1.092
Wednesday, Dec 17
7:00 MBA Purchase Index w/e 177.7
8:30 CPI mm, sa (%)* Nov -0.1 0.0
14:00 FOMC rate decision (%)* N/A
Thursday, Dec 18
8:30 Initial Jobless Claims (k)* w/e 295 294
10:00 Philly Fed Business Index * Dec 27.0 40.8