Stock futures and Treasury yields moved higher overnight, helped by yesterday's final approval of the Greek bailout funds (expected) and a very strong reading on Germany's ZEW Economic Sentiment Index (unexpected).  To quantify the latter, the consensus was 10.0 vs a previous 5.4 and the index printed today at 22.3.

Even so, the weakness in bond markets has been moderate and has occurred in light volume ahead of today's hefty line-up.  10yr yields are about 1.5bps higher to 2.052 and Fannie 3.5 MBS are down 2 ticks at 103-07.

As for that "hefty line-up," there's a major event from each of the 3 main categories of guidance-givers for bond markets.  First up, representing "economic data," February Retail Sales prints at 8:30am and is expected to show a 1.0 percent gain following last month's 0.4 percent gain.  This will likely set the tone for the day, but the normal impact of the report could be muted due to the even bigger events in the afternoon.

At 1pm, there's the week's most important auction (as far as production MBS are concerned) of $21 bln of re-opened 10yr Notes.  This is the polar opposite of yesterday's 3yr auction, which was relatively unimportant and mostly uninspiring.  This 10yr auction in particular, much like Retail Sales earlier in the day, might not register with full force owing to an FOMC Announcement that follows just over an hour later.

At 2:15pm, the FOMC Announcement will be released.  Of course, there's no Fed Funds Rate change on the table as markets are more interested to detect any clues about a shift in policy moving forward, especially as it related to any potential of further quantitative easy, sterilized or not.  On that, markets are skeptical that we'll see any mention of QE3, given recently decent economic data and Bernanke's avoidance of the topic at the semi-annual congressional testimony.  

Even so, the event remains a big potential market mover.  Even if it's utterly bland and boring, some trading sentiment created by the day's earlier events will be waiting to fully stretch its legs until after the FOM Announcement is a known quantity.  While we continue to advocate a "play the range until the range plays you" stance, today is one of the better chances for events to shake the market out of it's recent sideways lull.