After another decent auction--this time $32 bln in 7yr Notes--bonds showed little inclination toward volatile movement in either direction.  Relatively light supply in MBS vs. relatively healthy demand across the stack (but from different sources - Fed at the low end in particular) helped keep prices in check.  Nonetheless, prices ground a bit lower after the auction.  But as the ink dried on Bernanke's confirmation, both MBS and Tsy's moved to their best levels of the day.

Stocks were sold early and often, but rallied in waves to end over 1% down on the day in the Dow and S&P, and closer to 2% down in the NASDAQ.  MBS 4.5's ended 2 ticks up on the day at 100-27 and the 10yr gained a tick despite some curve steepening (in other words, 10's gained, 2's gained more) to end at 3.64.  2's currently flirt with long time nemesis .87.

As we've mentioned a few times this week, tomorrow is an uncharacteristically heavy data day for a Friday.

  • 830 AM - Employment Cost Index (consensus: unchanged at a 0.4% increase
  • 830 AM - GDP (consensus 4.5% growth)
  • 945 AM - Chicago PMI  (consensus of 57.0, previously 60.0)
  • 955AM - Consumer Sentiment (consensus 73, previously 72.8)

We've made it through the brunt of the economically significant data of the week with auctions taken down as of today, FOMC statement digested, and Bernanke confirmed.  With that confirmation occurring late enough in the day to line up with the stock market close, it's uncertain how much of its impact is reflected in the trade.  Whatever the case, all things being equal, it's not a negative event for bonds, but it remains unclear as to how much of a positive event it would be.

Bonds did not get enough germane data this week to move of their own accord.  For once, auctions were a relative non-issue, and here a day after FOMC, we go out a mere 6 ticks away from pre-FOMC levels.  This is not much movement at all...  And so bonds are relegated to "cue-taker" as opposed to "cue-giver."  It's just a matter of deciding where to find that guidance.  The stock lever comes and goes, but with the S&P closing UNDER that LONGSTANDING range that has come to define the entire months of December and January at 1084 (1087 was the lower limit of the range), they certainly constitute a more interesting story.

But stocks love a good GDP reading.  So even one of this week's cue-givers will become a cue-taker on tomorrow's AM data.  Will stocks then, in turn, give guidance to bonds, or will something in the data be meaningful enough to elicit a response from bonds?  I'm asking because I don't know.  No one can for sure, but with 830AM eastern marking the time for the most significant report of the day, and with that lovely shade of green on the MBS screens, it certainly wouldn't be a bad idea for the non-dice-rollers among us to shore up a decent amount of our pipelines.