Monday proved to be every bit as slow as expected in terms of volume but unfortunately also as volatile as such low-volume sessions can be.  This isn't the sort of volatility that takes bond markets on a wild, significantly higher or lower, but rather the sort that arises for seemingly no good reason, making for unexpected moves with little by way of cause and effect to help us divine the trading motivations.

And thus the vicious cycle of trying to read too much into low volume days continues.  Just by noting that yesterday was the lowest-volume day since early April (depending on which metric you choose), we rob the movements of most of their significance.  After all, one of the core components of the technical analysis canon is an increase in volume is a prerequisite for reading technical significance into changing trends. 

Markets weren't trying to show or tell us anything on Monday and instead were simply trying to get by.  They managed this and the "green-ness" of MBS prices turned out to be an innocent bystander to  late day low-volume volatility but as we noted in our last alert yesterday for MBS Live subscribers, the low volume even lessens the extent to which lenders read into price swings (perhaps partly because they were already out with weaker rates on the day despite flat to improved MBS).  The following turned out to be fairly spot on as only one negative reprice was seen in the afternoon:

"To be clear, MBS did just hit their weakest levels of the session, and while that does incrementally increase the negative reprice risk, it's not a situation that justifies widespread negative repricing. At current levels, we may see a few lenders come in with a new sheet, but that would be it for now. "

Now for Today....

If the schedule of economic data at home and abroad is any indication, we may well see a market that is trying to do something other than merely trudge through an apathetic summer session.  We normally wouldn't bet against such enticingly cynical assessments such as those that seem to suggest "nothing matters," but the concentration of data today, particularly in Europe, is quite something.  In fact, a bullet list may be in order (note, not all these line items are heavy hitters, but some of them are quite important):

Europe:

- France GDP

- France July Inflation Data

- Germany GDP

- France Nonfarm Payrolls

- Switzerland Import/Producer Prices

- Sweden Industrial Production

- Sweden Inflation Data

- UK Inflation Data

- Germany's August ZEW Survey (note the timeliness of an "August" report coming out on the 14th of the same month.  This one's a biggie anyway)

- Euro Zone GDP

- Euro Zone Industrial Production

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US:

- July Retail Sales

- July Producer Price Index

- June Business Inventories

- Scheduled Fed Treasury Buying in the 8-10yr range.

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Phew!  You ever get the feeling that markets were just trying to trick you into thinking they were doing that whole "low volume, summer session" thing, only to be waiting for a meaningful day of data to really melt your face?  No, neither have we.... BUT if we do ever get such a feeling, we'd imagine it would arrive on a day like today.  We hope that even this quasi-comical question is completely uncalled for (unless of course that it leads to a face-melting rally as opposed to face melting sell off, then we're all over it).  

Bottom line, watching and waiting for any significant impact from the metric ton of European data and then tuning in for the highest-shelf domestic data of the week with Retail Sales.  By then we hope to know two important things: A) did all that data matter in terms of drawing out some meaningful volume? and B) if that volume exists, is it supporting a directional move that makes markets look like they're doing something besides trudging sideways through the dog days.