October has a horrendous track record for bond markets with 7 out of the last 10yrs seeing yields move higher with a 100% record of being terrible since the new era that began in 2009.  The current October is off to a similar start to previous examples and the next two weeks will ultimately determine if we chalk it up as another super nasty example or if it moderates existing losses and ends up being sort of equivocal by the end of the month.  To that end, the day ahead is a pivotal one.

With the first part of this week catastrophically failing to demonstrate any meaningful connection between economic data and market movements, we've only been able to hypothesize about what's moving money (or rather, what WOULD move money when money started to move!).  Money started moving in earnest on Wednesday.  When all was said and done, we were left with the surprising impression that markets still lack the sort of organic motivation that we were hoping to find and instead were trading more tactically and technically (short term goals based purely on trading levels as opposed to longer term positional adjustments based on economic fundamentals).

The biggest volume pop of the day occurred after the surprisingly strong Housing Starts numbers, but in actuality was simply the most ideal time for everyone to jump on bandwagon that was clearly in motion.  In terms of 10yr Treasury yields, if weakness continues today, that bandwagon has potential stopping points at 1.86-ish if markets wish to stay flat in the longer term and 1.936-ish if they wish to adhere to a rather tame trend higher in yield. 

There are two other possibilities as well.  On the aggressive side, if bond markets manage to rally today, it would be a fairly weak adherence to the technical trends and tactical trading assumptions.  On the scarier side, if we find 10's moving higher over 1.9326 (which would likely take more than one ugly session), then it would firmly reinforce a trend of weakness coming out of the summer. 

This is all a bit too speculative though.  The bottom line is that we're still not sure that markets know exactly where they're going and why.  If we see more reaction to morning economic data, which includes an interesting Jobless Claims report this morning as well as the Philly Fed Index at 10am, then we'd lean more toward markets being interested in how next week's FOMC Announcement evolves from the previous version, which announced QE3.  If we see more reaction to the headlines coming out of the EU Summit, we'll know to move the EU up a peg versus the FOMC.