An argument could have easily been made yesterday morning that bond markets should have weakened a bit ahead of the upcoming auction cycle and in the absence of data/events, thus making some room for auctions and to reestablish more bullish positions (bullish = betting on lower rates) after Wednesday's 10yr Auction and FOMC Minutes.  

But instead bond markets rallied today, and not at all because of any fundamental suggestion from data or Europe.  The underlying motivations for movement in Treasuries and MBS did indeed turn out to be 'positional' adjustments--in yesterday's version, relating primarily to the scheduled Fed buying.  The interesting thing is that while the trading ahead of the Fed buying would suggest bond markets were indeed ready to weaken if there was any sort of overabundance of supply offered up for the Fed's perusal, but supply turned out to be lighter than expected.  

As that supply/demand equation brought prices higher and yields lower, that logical bet about weakening ahead of the auction cycle (short positions) now had to protect themselves against any further swings in a positive direction (aka: "short covering") and the mini-snowball simply rolled down the hill to the lowest closing yields in a month (and highest MBS Prices).  We'd emphasize the "mini" part of the snowball though.  Ranges were still quite narrow.

All told, Monday proved to be every bit as slow as expected and Tuesday offers nothing better.  In fact, in our broader assessment of the entire week, Tuesday has the least going on.  However--and if it even needs to be said to anyone who lived through the past 11 months--we're well aware that the absence of significant scheduled events certainly doesn't preclude choppy price action.  But we would say that such price action isn't likely to be a serendipitous occurrence at this point.  

In other words, we're not thinking that bond markets will get wild "just because."  They had a chance to do that yesterday and instead kept right on doing what they were doing.  We may get a tad more volatility today as the more meaningful events get closer, but markets currently give the impression that it will take a headline of massive importance in order to nudge Treasuries and MBS meaningfully off course (though do keep in mind that MBS get visually "nudged" about a quarter of a point lower in price at the end of trading today simply due to "the roll" from July coupons to August.  Prices aren't changing.  We're just changing where we look for them).