Today brings to a close a two week that has--until this morning at least--been one of the most sideways and tightly contained two full weeks we've seen.  Without overcomplicating things too much for bond markets, we think that probably has most to do with the collective agreement/realization that it was "too soon" to go stampeding over 2% 10yr yields combined with fundamental backing out of overly aggressive Fedspectations.  What does all that mean?

It means that part of the bond market's "problem" into 2013 has been the gradual adjustment of expectations for the Fed's direct purchases.  No one thought they would end much before late 2013 at the very earliest, but the process of changing from "<this much> and possibly expanding" to "<this much> and possibly contracting" certainly required prices and yields to change.  Treasuries and MBS, by their very definition as "fixed-income" are simply a series of payments; cashflows stretching out into the future.  If the value of a bond is the net present value of future cash flows, and if changes in Fed policy lead investors to adjust their expectation of the Fed's $85 billion / month of guaranteed cashflows, then today's price and yield MUST change.

And change it did!  January was fairly ugly and in many ways, felt "sudden" compared to the past 2+ years of never ever seeing any sort of similarly sustained uptrend in rates (sounds like hyperbole, but no...).  It was compounded by a similar adjustment in Europe.  Things weren't "fixed" per se, but they were suddenly "less certainly dire" after January 25th's LTRO repayment surprise.  It wasn't until Italian elections threw a bucket of cold water on global markets that we really had compelling evidence that 2% (with some over-run of course... we're talking "big picture" 2% which is "anything close, with a central tendency near 2%").

Longer story less long, there was some uncertainty as to whether or not 2% would be a firm enough ceiling.  With the recent shift toward "tapering" verbiage from the Fed (as opposed to the "on/off switch" approach to QE) and the recently more downbeat economic data--not to mention the EU still "not fixed" and German Bunds near all-time low yields--the 2% ceiling question has been answered.  BUT...  a new question was quickly asked, and the last two week's of ridiculously sideways containment tell us that the question is about establishing the next range and/or trend.  Particularly 1.67-1.73 is an extremely interesting technical zone.

It's not like this zone will be the line of demarcation between the last range and the next, but the fact that yields have been so very stuck here lets us know that market participants are conflicted about what happens next and waiting on "something" to inform the next move.  Such a move could include a continuation of the long term uptrend in rates, a sideways range between 1.7 and 2.1, or a continuation of the downtrend in rates.  The "something" upon which we're waiting is very probably "next week," which includes FOMC, ECB, and NFP.  Arriving at 1.67+ by April 15th was akin to camping out for tickets to the big show.  

You only do that if you're a super die hard fan who insists on the best seats and if you wouldn't miss the upcoming performance for the world.  That about sums it up for the upcoming week.  For the first time in a long time, the ECB has a chance to cut rates and economists are fairly split on the issue (but leaning toward a .50% cut).  Then there's NFP, where another disappointment would all but confirm a big nasty turn in US labor markets.  Before all that, the FOMC will release an official policy announcement on Wednesday.  We're not sure what major change they would make at this juncture, but a softening of verbiage could definitely be an ingredient in a potential "Spring Shift" that bond markets have come to know and love.

What of today then?  We discussed a potential "lead-off" earlier this week, but have yet to see one (4/23 seemed like a contender, but quickly went back to base).  That's still a possibility for today's data, but the bigger show continues to be all about next week.  If we haven't seem something more meaningful develop by this point in the week, it goes a long way toward suggesting that 1.67-1.73 is where 10's want to be heading into next week (lines up with 104-02 to 104-11 in Fannie 3.0 MBS).

As alluded to in the title, here's the "choose your own adventure" choices.  The first trio of charts have been stripped of their identifying information and left only with some simple linear regressions and thematic captions.  Pick one of the three before scrolling down to the next chart to see which one you chose!

And now adding back in the identifying information...