Those whose pulses and pocketbooks are somewhat tied to bond markets have enjoyed an era of unprecedented yields, both in terms of outright levels as well as the compression of trading ranges.  By far and away the largest contributor to both of those phenomena has been the Fed.  More appropriately, it's been the hook, line, and sinker with which markets (finally) came to buy in to a prolonged compression and depression of interest rates.

Now we're seeing just how deep that buy-in ran, and it's not pretty.  Trader A is looking at Trader B saying "I thought you were going to buy here," only to be answered with "no, I thought Trader C was going to."  Trader C says "don't look at me, I thought Trader D was who you guys were thinking would buy," while Trader D says "couldn't have been me... I'm looking to sell."  Then all four stooges realize they all want to sell and the selling continues.

Actually, it's worse than that because the selling only continues efficiently when there's liquidity to make it happen, but positions are so spread out that traders are reaching far more than normal to make trades happen.  Bigger-than-normal blocks of trades are jumping bigger-than-normal gaps between buyer and seller.  Trader A says "Ok, I'd really like to sell 100 widgets for $100.00."  Then after not being able to do that for long enough to be panicked about it, Trader B says "won't do $100, but I'll do $95, if you sell me 200 widgets."  Thus volumes stay elevated while liquidity suffers. 

This process is still running it's course as we enter the new week and while it continues, it's more powerful than any piece of economic data other than NFP.  It could be that this snowball subsides before the week's data and events start kicking in and shaping near term expectations, but we could also be waiting for next week's ADP/NFP before buyers start to build their confidence again. Bottom line: to at least the same extent volatility has been lighter than normal in the past two years, it's currently more likely to be greater than normal.

In the meantime, the current week of data would look fairly robust at any other point in history.  The Treasury auctions (2s, 5s, and 7s) are a major concern, and likely played in the recent snowball.  That makes Thursday afternoon a potential scene for a relief rally if markets haven't otherwise collected themselves before then (and we ARE expecting them to collect themselves before next week's NFP, but to an unknown extent). 

Beyond that, it's simply a decent batch of economic data, with Monday being the exception.  Things pick up Tuesday with Durable Goods and Consumer Confidence at 830am and 10am respectively.  Home Price reports are out at 9am and 10am from FHFA and Case Shiller, but aren't as likely to move markets.  Final GDP for Q1 prints on Wednesday, but the 5yr Auction is the highlight at 1pm.  Thursday brings Jobless Claims, Consumer Spending, Pending Home Sales and the 7yr note auction.  Friday wraps up with Chicago PMI and Consumer Sentiment.