Bond markets continued to give the impression that they're not eager to commit to any prolonged directional moves ahead of the series of events most likely to elicit prolonged directional moves.  In other words, we clearly sold off from late July to mid August, spent several high anxiety sessions chopping around sideways near the worst levels since May, and finally, officially arrested and reversed the sell-off coming out of the FOMC Minutes.  Then the question became "now what?"

"Now what?" because by the morning of 8/23, we'd already made it back to the first major line of defense that we'd previously looked to for support against the initial sell-off.  Trading on 8/22 took us from levels that were downright scary (less scary because we could hold out hope that we were simply witnessing coincidental collection of data and events playing out in a lower-volume, holiday time frame) back to levels that wouldn't have bothered us much at all if the initial sell-off had simply stopped there.

We were forced to confront the "now what" question because the bounce back happened so quickly--too fast even.  On 8/23, there was a long time to go before the next mega events on the radar in early September.  Much has been made of Friday's J-Hole speech, but even if it produces much of a reaction, it's nothing compared to the potential energy of 9/4-9/14 events (including FOMC, ECB, NFP, And German votes on the constitutionality of ECB rescue plans).

We saw the gap between that "important stuff" more than a week away combined with the fact that flows seemed to level off on the 24th and it seemed likely that bond markets would be predisposed to trade a sideways range--potentially choppy and potentially tilted slightly bullishly or bearishly--between then and such time that we received enough oomph from data and events to suggest anything else. 

Bottom line, there was a good chance that this was the holding cell from Friday to today, and that's exactly what it's turned out to be.  Today feels a bit early to start thinking about a breakout of the recent range.  To be clear, yesterday's weakness didn't threaten it in the slightest.  Even if we do get surprises in the data and events today, we'd still be hesitant to assume that momentum was created in light of the heftier events to come.

Taking their best shot at creating such momentum (or at least making it look like it) are a few relatively important pieces of economic data out of Europe overnight, including Germany's Unemployment Report and Euro Zone Economic Sentiment.  Domestically, probably the week's biggest report hits at 830am with Incomes and Outlays as well as a potentially interesting Jobless Claims report as it follows last week's which was a bit higher than expected (trend or outlier?).  There's also the 7yr Note Auction at 1pm, though today's 5yr was uneventful.  7's are an even smaller piece of market volume and it's rare to see 7yr auctions cause major shifts.

Play the range until the range plays you, and all that...  For the record, that's "capped out at 103-13 on Fannie 3.0s and worst case support at 102-24."  Anything in between is just fluctuation within a wide, sideways range amid less consequential vacation-season trading (definitely not inconsequential as volume was respectable yesterday, so we're not asleep in the hammock on the beach just yet, but ready to doze off if yesterday's uptick looks at all like a bluff today).