The charts may make today look like a somewhat exciting, if not entertaining day, but in reality, even the low volume wasn't enough to create much more choppiness than a 4 tick range in MBS and a 2bp range in Tsys.  Bot only that, but as the day progressed, both of those narrowed to end within 1 notch of  long term technical levels.

For MBS, that level is probably best represented at 100-28, which goes ALL the way back to the firm resistance to gains over the summer.  It then held up fairly well as support coming out of the summer months and all the way through November.  Last week's positivity ended with some uncertainty as to whether or not 100-28 was ready to be "supportive" again, but it was too soon to call going into the weekend.  And here on an uneventful Monday at 100-27, it's going to have to wait for more guidance still.  The close at 100-27 is about two ticks down from Friday's close and more or less dead even with where we began the day.  Yawn...

Expressed in yields, the treasury side of the chart looks even more tame.  The double top in yields on Friday was a promising sign, but for the same reasons as MBS (and everything else for that matter), the jury had to remain out until this week of data, including the FOMC and another round of auction results, could play out.  And just as MBS were a tick weaker than their long term level, Tsy's were 1 basis point weaker versus their preferred technical pivot at 3.62.  On the day, the 10 yr rose almost exactly 3 bps to 3.628, also not enough of a leap to move to any conclusion on technical movements.

And with auctions starting tomorrow, FOMC on Wednesday, and GDP on Friday, it's not such a surprise.  A non-committed, sideways, and lower volume theme makes sense heading into all that data.  The only thing left to discuss or perhaps discover, is which of the data will the bond market view as most significant.  In other words, "if not now, when?!"

First of all, I'd be surprised if Consumer Confidence does the trick (of getting bonds off the fence) tomorrow morning.  That's not to say that bonds won't be OFF the fence, merely that it probably wouldn't be due to confidence numbers.  Why is that?  Apart from the obvious reason that confidence is relatively insignificant vs. FOMC, auctions, and GDP, there's a more subtle reason dealing with the reports previous readings vs. the current consensus. 

The consensus for an uptick to 53.5 from last month's 52.9 might seem like it could compound a potential pre-auction rates concession, and in fact, it very well could, but the primary driver for higher rates in the AM would have more to do with that concession than confidence for one very important reason: Given the range of expectations, there's not much Confidence numbers could do to speak to the big picture short of hitting a Micky Mantle Intimidating home run.  There's too much overhead room for it to challenge the most important ranges in the big picture, and the consensus improvement would even leave the index under it's two most recent highs in the shorter view.

But again, that doesn't mean Confidence can't COINCIDE or ever give the appearance that it's driving the trade in the morning.  It's just that the most important data will be yet to come in the form of the 2yr auction.  Be aware, there's always a risk of  pre-auction weakness that is either confirmed by the auction, thus keeping rates fairly steady, or alleviated by the auction, the helping rates.  In rarer cases (at least as far as recent memory is concerned), the auction can make things worse, but not only won't we know any of that until tomorrow, the 2yr duration doesn't speak as much to the MBS universe as the 5yr that follows on Wednesday, quite close to FOMC announcement as well! 

Should be a fun week...  CAUTION is probably a more dominant theme for traders ahead of such data than RISK-TAKING.  And it is for us as well.