After a day and a half off, markets return to a full session on Wednesday, but only in the sense that markets are open all day.  Beyond the technicality of being "open," there's not much to write home about in terms of economic data or anticipation for headlines.  In fact, there's essentially nothing interesting about the the economic data apart from the fact that Case-Shiller Home Prices at 9:00am is at least an ongoing barometer for an integral part of the mortgage industry, but it won't be a market mover.

In order to see anything more than day-trading and year-end positioning in exceptionally light volume, we'd need a substantial Fiscal Cliff development.  To that end, the Cliff is at a symbolic fork in the road, and must take these last few days of the year to choose a path.  The first path is centered on some sort of "deal" being reached before the end of the year.  This is the one that would have the more profound impact on markets and is more likely to stir up some semblance of activity on what would otherwise be a fairly slow few days.

The other option is that the Cliff accepts what more and more headlines seem to suggest, and simply drifts into 2013 for some sort of "soft landing."  There's no telling how trading levels will shape up over the next three days if this is the case, but we'd guess that it would be somewhat dependent on the level of confidence (or lack thereof) coming out of Washington, as well as the availability of particulars.  In this environment, it makes sense to continue to stay defensive.   If we get no news or discouraging news, MBS could slowly realize some benefits, but at the first sign of "good news," bond markets could sell-off with the help of low volume providing less resistance to determined moves.