Today was one of those disappointingly slow and uneventful days where we struggle to find anything meaningful to discuss.  It just, sort of, "was..."  

FNCL 4.5's, the primary guidance giver of loan pricing,  spent the whole day between 102-01 and 102-06, with at least 80% of that being in the middle of that range.  10yr benchmarks experienced a similarly narrow range between 3.38 and 3.41.  Volume was low.  Data was nil.  Nothing new or important came to light. 

We take times such as this both to prepare for what lies ahead and also as a reminder to ask ourselves if the silence could mean anything.  Luckily, we can do both at the same time today, and largely already have. Potential Range Breakers and Less Predictable FOMC Statement Poses Risks

In preparing for upcoming headline events we almost don't need to ask ourselves if today's silence means something.  It's pretty much a given...

  • We've been in an exceedingly regular,  sideways range for long time (between 3.30 and 3.50 roughly)
  • The day before the first major event on our horizon, 10yr yields went out the door at 3.40 (and indeed, spent most of the day trading there)
  • There was no data today to drive trade or volume, nothwithstanding the important State of the Union Address and FOMC announcements on the horizon)
  • The recent range, when viewed on long term charts constitutes a clear example of a bear flag. 

Plain And Simple: With today coasting to a halt in the middle of the range, with the two economic events already mentioned coming up, and with an eye on this week's auctions and other less-pivotal econ data, we will see our best opportunity yet for momentum to build toward one end of this range or the other, in order to break out, or as you might prefer: RELEASE STORED ENERGY!  (Incidentally, AQ and I will soon be marketing an energy drink relying on the slogan "Release your stored energy"). 

This is not a good time to be complacent or to let any sort of innate "hope" or bullishness cloud judgment.  There are valid technical reasons to be wary of negative reactions to both the SOTU and the FOMC Announcement.  This is not a prediction that this WILL happen, but certainly an acknowledgment that it COULD (especially if concurrent with less-than-stellar auctions).  Bottom line is to not get complacent.  We think this is the week where a trend will get set in motion that ultimately puts an end to the ongoing pinball bumper bouncing.

Here's a snapshot of the market at closing time.  For more info on the week's goings on, check out The Week Ahead.