A maritime analogy for bond trading in the Summertime...

In the summer months especially, there's a boat-friendly baseline weather pattern offshore.  Lest you think that's a generality that doesn't merit your full confidence, check out the following shots of wave height at the moment.  Blue is calm, and pink/red/crimson indicates big waves.  You will likely notice a distinct difference between Northern and Southern hemispheres.

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As you recall from your earth sciences class in grade school, it's Winter in the southern hemisphere right now.  You don't really want to do much boating off the coast of Australia.  If you do, you know that you'll need to expect severe sea conditions.  

It's much the opposite in the Northern hemisphere.  Here, there's a certain baseline of calm weather/water that ocean-goers can count on, for the most part.  You will definitely notice in the Northern chart, however, that there are pockets of unfriendly water here and there.  

This, then, brings us to the market analogy.  Financial markets in the Summer are like summertime water patterns.  There's a general baseline of calm, but with distinct pockets of volatility.  People go about their business on the water in the summer planning for that calmer baseline, hoping to avoid the drama just like the average trader plans for a calmer baseline and hopes to avoid drama.

The tricky part of the summertime planning is that the pockets of volatility (or rougher water, if you like) seem like a much more abrupt departure from the recent trends.  When we zoom out to the bigger picture for financial markets, we find that the seemingly crazy days in the past few weeks are merely a part of a larger, calmer ocean.  There were much bigger swings in every other month that wasn't July or August (the 2 calmest Summertime months on the ocean).

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Now to tie all this in to a relatively data-free Friday!  If traders have been on bigger ships during the course of any given week, Friday (especially when there's limited data) is where they hop on their tenders (smaller boats that ferry passengers to shore from bigger ships) and head home for the weekend.  Friday is a travel day.  It's transitional.  Monday is the same way, to some extent.

While in transit on these smaller vessels, traders (most of them) distinctly hope to avoid those pockets of uncommon summertime rough water.  They're not seeking volatility and big wins.  They'd prefer to avoid big losses and simply live to trade/sail another day.  

And so it is that we begin the day hoping for a low-volatility sideways fizzle.  As the chart above suggests, the direction of trading doesn't much matter if we're not moving much more than we have been in recent days.  It won't change the bigger picture.  If, however, we encounter volatility, it will feel like a bigger deal because of that calmer baseline.  Those waves have a much easier time rocking Friday's smaller boats.

Bottom line, if we don't get the sideways fizzle, there could be random spurts of abrupt movement.  Not to jump around analogies, but it's like we discussed yesterday: it's easier for mini-snowballs to start rolling in lighter liquidity trading environments.