In many ways, the most exciting thing about today could be that it's the last day to get out of the way before getting to FOMC week.  Despite the ostensible dominance of European concerns over domestic bond markets, US Fed policy remains the other large gorilla in the room, and on occassions where Europe isn't in a particularly loud or violent death spiral, FOMC gets the nod.  Considering that there are no Greek elections, austerity vote deadlines, and barring additional Spanish provinces running out of money, we'd consider Europe to merely be in the throws of a calm and orderly death spiral.  Case in point, note that this week's hints at some sort of impending action from the European Central Bank (read more...) have failed to motivate the Euro above it's recent major pivot point:

Certainly, yesterday's move higher in the Euro was the biggest we've seen recently, but it also occurred at the lowest levels in years.  At times like this--where things are bad and getting worse for Europe--markets have come to expect Draghi et. al. to ride to some sort of rescue on some sort of stallion.  They're willing to acknowledge the possibility that something new could come of the rhetoric, but the fact that things didn't bounce even harder is evidence that the Italian and his stallion are innocuous until proven otherwise.  3yr Long-term refinance operation (LTRO)?  Great!  That didn't help...  Another LTRO?!  Mario, it's starting to look like you're just buying time... Now you amp up the rhetoric with a "Believe me, it will be enough!"  We WANT to believe you, and we hope you deliver, but both we and markets in general, will believe it when we see it. 

The chart above is a well-balanced representation of the "believe it when we see it" sentiment, but with more than a little bit of HOPE for execution.  In other words, the Euro reacted, but not overly so.  The true picture of skepticism can be seen in US Treasuries where "we're just not buyin' it anymore..."  Of course, we could be witnessing subdued yield levels on the hope that next week's FOMC Announcement contains something bond-market friendly, but even then it's hard not to see the next chart as an example of a US Treasury market that is just fed up with the roller-coaster and will respond to results over promises.  Setting Treasuries against German 10yrs illustrates this point well.  One of these is flighty, panicky, and hyper-reactive.... The other is just done....  See if you can guess which is which...

You guessed US Treasuries were yellow, right? 

At any rate, what we're getting at is that we actually don't really care about today unless someone from Europe says something interesting which is further subject to the caveat that the interesting thing must be guarantee, implement, or definitively set in motion some ACTUAL event or action (as opposed to simply being more lip service).  Sure, we'll get the Final reading on 4th quarter GDP at 8:30am as well as Consumer Sentiment at 9:55am, but these are but small cogs in a bigger picture and would need to fall far from the realm of consensus in order to meaningfully alter the trend of sideways, narrow, and slightly lower rates.

Otherwise, next week is where it's at as we'll not only get a much better shot at Europe announcing something substantive (or more substantively failing to do so), but also find out how much of the current attitude in US Treasuries is "waiting on the Fed," not to mention whether or not the Fed actually pulls the stimulus trigger about half a meeting earlier than the consensus (implying that some think it will be this meeting while others think it will be the next one).

MBS Live Econ Calendar:
Week Of Mon, Jul 23 2012 - Fri, Jul 27 2012