On most other days, the lineup of data and events on Wednesday (yesterday too, for that matter) presents some serious market moving considerations.  Yet the fog of uncertainty created by the Italian election fallout hangs thick in the air and is likely to continue obscuring market-moving truths until it's either miraculously dissipated or discovered to be as noxious as it has been previously (when a Berlusconi power vacuum resulted in similar failures to "form a government" in 2011, and the ultimate emergency appointment of outgoing PM Monti).

Italy is very much "not Greece."  Although turmoil in the two countries have played similar roles--or at least coincided with similar movements on the part of US rates markets--a burgeoning crisis in Italy is much more significant than Greece.  Markets have actually grown to cope with the idea of a Greek exit, but the emergency appointment of Monti in 2011 slowly but surely meant they never had to cope with such an idea regarding Italy.  Up until the Italian drama in 2011 looked on its way to being solved, Treasury yields were at their generational lows and the .VIX was as high as it had been since the 2008 crash.  Try your luck with the following chart if you're into headaches:

There's so much to say about that chart because that chart has so much to say about--  Well... Everything.  some highlights:

- Note the left-most yellow highlights showing the US-specific nature of the 2008 collapse in that EU credit spreads barely budged

- Note that 'economic contagion' became a decidedly global idea in 2010 and was the first major shock since 2008

- Note that the VIX doesn't go much higher in 2011 despite the EU getting much further out of control...  Chalk that up to the ongoing realization that the US isn't the source of the problem any longer (i.e. "best of the worst") not to mention the calming effects of QE.

- Note the progressive decrease in VIX spikes as the EU has slowly descended, but that Treasuries have been much less volatile due to their direct connection to QE buying.

That last point is pretty important because it tacitly implies that it takes BOTH  a freeflowing QE spigot AND serious Eurodrama to produce all time low yields (or price highs as seen in the chart).  To be sure, there's still plenty of room to run lower in rates even without those two conditions being perfectly met, But as for now, the water pressure in the QE pipeline is decreasing vs building.  THIS WASN'T THE CASE when we hit all time price highs in 2012!  It would be VERY difficult for similar price highs to be achieved in any environment where QE is seen getting smaller vs getting bigger.  January 3rd was the noticeable change in pitch of the QE engine, much like the Doppler effect on a passing car.  All we can see now is that car getting smaller on the horizon.  

All that has happened in the past 2 days is that Italy has rekindled the other side of the low rates equation.  It's certainly done "something," but things will need to be "way more awful" before it could have sufficient ripple effects to reinvigorate QE's.  There's always the possibility of unforeseen market movers looming in the shadows, but after Bernanke's speech yesterday, he'd be hard-pressed to say something very different today.

Beyond that, we're left with Durable Goods, Pending Home Sales, and a 7yr Note Auction.  If markets decide to jump materially on these events, it would be a surprise.  Bottom line, while rates may improve marginally, expect any positivity courtesy of current events to have a tough time forging into lower-rate territory.  The exception is Italy.  If Italy can manage to deteriorate enough, it could go a long way toward counteracting QE abatement expectations, but Italy probably needs more time to do that than they'll have this week.