As we look ahead to the current week's calendar of events, we're starting to think that last week may have only been a diversion for the real attack of volatility over the next 5 days.  But then again... holding a 30bp range for over four months is about as far away from volatile as long term interest rates have been (using 10yr Treasuries as a benchmark.  Mortgage rates have moved even less).

The concept of "play the range until the range plays you" comes to mind.  That means that instead of constantly adjusting strategy in an attempt to get ahead of more abrupt swings in MBS prices/interest rates, simply bet on the broader ranges that clearly emerge.  More colloquially, don't 'freak out' if MBS prices fall abruptly as long as broader support levels are intact.  Despite MBS being the key determinant of lender's rates, we'd turn equally to Treasury benchmarks in gauging when trends are intact, potentially breaking, or broken. 

That said, it's probably impossible for us not to take an inventory of a week's worth of potentially important economic and technical events and not be at least "interested," even if we're not "freaked out."  The previously mentioned 'attacks of volatility' have all been hot air thus far, and at the first indication we're dealing with something more than another bluff, we'll react accordingly.

Here are some of the key ingredients in this week's attempt to strike fear of volatility in the hearts of MBS watchers:

Monday

Probably the least busy day of week in terms of volume and market movement.  It's notable for a Monday in that it contains the first of the week's of Treasury note/bond auctions, an honor normally falling to Tuesday.  But the auction in question--3yr Notes at 1pm--isn't one that has been too terribly important to production MBS.  The only other item on the economic calendar is the release of the Treasury Budget at 2pm, also not traditionally a big market mover.  That leaves the best chance for volatility--at least among scheduled items--as the 10:15-11:00 Fed Treasury buying in 2036-2042 maturities (11am-1115am is normally when we'd see the shake up)

Tuesday

Probably the most potent day of the week in terms of bond-market-specific events, containing both the 10yr Treasury Auction and FOMC Announcement

830am - Retail Sales - This is the first "biggie" of the week and is seen +1.0 percent versus a previous +0.4 percent.

10:00am - Business Inventories - Mentionable but more of a supporting actor than showstopper, Inventories for January are expected to have risen 0.5 percent versus December's 0.4 percent increase

1:00pm - 10yr Treasury Auction Results.  Always a big deal.  On the one hand, this one's informative because we've been so long without Treasury auctions.  On the other hand, it's followed by big-ticket items later in the day/week that could mute the response.

2:15pm - FOMC Announcement - Cue that first "big ticket" item mentioned above...  We'll say the same thing about this as we said about Bernanke's congressional testimony.  Markets are quite dismissive of the possibility for any new developments in Fed Policy, and rightfully so, but we think that creates a risk of being too dismissive about how much of a reaction we could see on an unchanged report.  There are always 'clues,' and more often than not, those clues are traded more than you'd think they would be.  (Remember, before the recent congressional testimony, the prevailing sentiment was that Bernanke wouldn't indicate QE3, but then when he did exactly what markets were expecting, they traded it as if it was a surprise).

Wednesday

Wednesday is sort of the eye of the storm, and a transition from FOMC and Treasury Auctions to Economic Data.

700am - MBA Mortgage Applications - not a market mover, but interesting trend-tracking for origination community

830am - Current Account (Trade Balance) - not much of a market mover, but especially not on this week.  seen at $-114.1 bln vs -110.28 previously

830am - Import/Export Prices - seen +0.6/+0.2 respectively versus +0.3/+0.2.  More expensive import prices and stagnant export prices.  Not a biggie.

900am - Bernanke speaks at a conference in Nashville.  Ben's always important, especially the day after FOMC Announcement

1pm - 30yr Bond Auction - Not as important as the 10yr, but significantly more important than the 3yr, and since it's the last of the week (non-TIPS), it always has some potentially for that "full picture effect" where pent-up trading ideas from the previous auctions and events are released once the third and final auction's results are known.

Thursday

Now with the Economic data.  The last two days of the week have almost all of it...

830am - Jobless Claims - With us as always... Seen at 359k vs 362k previously

830am - Producer Price Index - Seen +0.5 vs +0.1 Previously.  Excluding Food/Energy, seen FALLING from 0.4 to 0.2....  Gas prices...  This is KNOWN.  News media loves to tout the inflation reports as big market movers.  We think that's a bit overdone, but wouldn't rule out some market reaction to results that fall far outside the consensus range

830am - Empire State Manufacturing - Expected at 17.85 vs 19.53 Previously.  Solid "supporting actor" type manufacturing report, partly due to the impressive company it keeps this week

900am - TIC Data.  Shows changes in foreign investment in US Treasuries.  More of a retrospective report, not a major market-moving concern, but good water cooler conversation

1000am - Philly Fed Index - Forecast calls for 12.0 vs 10.2 previously.   This is one of the more potent regional manufacturing barometers, and the last report of the morning.  A big deviation from the consensus is possible market mover, even if it's not a 'range-breaker.'

Friday

More economic data...

830am - Consumer Price Index - See comments on Producer Prices above...  Same applies mostly, although CPI > PPI in terms of significance.  We're still not too impressed/concerned with inflation data at the moment.  Yes... oil is high.  This causes prices to rise.  Markets know this.  Again, excluding Food/Energy, Consumer Prices are seen NOT rising, just like Producer Prices, +0.2 vs +0.2 last time.  The headline is expected higher at +0.4 vs a previous reading of +0.2.

915am - Industrial Production/Capacity Utilization - Moderately important report.  Output seen expanding 0.4 percent vs 0.0 percent previously.  Capacity Utilization seen at 78.8 percent vs 78.5 percent previously.

955am - Consumer Sentiment - Always a potential market mover, but would need to deviate more than it has been from estimates in order to cause much movement.  February's final reading was 75.3 and Friday's preliminary March reading is seen at 76.0