Yesterday

- Volume increased, but ranges were maintained

- Consumer Confidence and 5yr Auction helped keep bonds buoyant ("jobs hard to get" component, mainly.  See chart below)

- Retail Sales Report Didn't have much impact

- Rates moved sideways

Today

- Biggest day of the week in terms of data and events

- ADP at 8:15 (important NFP preview) is the Morning highlight

- FOMC Announcement in the Afternoon

- Is this finally enough to break the monotony?

Strategy

Is the collection of data and events today finally enough to break the recent monotony in bond market trading levels?  Or will we be waiting until next week's NFP for such a thing?  Would we care if we were?

Perhaps the worst thing about rates being sideways at multi-month lows is that it's tough to find much to say about the short term rate landscape.  From a broader standpoint, we're in the same position that we've been in for the past several weeks (but especially since NFP) where the correction is no longer able to be ruled out as a consolidation amid a long term uptrend in rates.  We're legitimately considering a move lower in rates IF data justifies it.

That's a big "if" at the moment and it's compounded by the recent shutdown and lingering debt-ceiling fight coming early next year.  If we see significant data in the next few weeks, is it more important because it shows how the economy fares amid shutdown-related uncertainty?  Or is it less important because shutdown-related uncertainty isn't a permanent facet of the economic story? 

A lot is up in the air right now.  Instead of assessing near-term FOMC policy changes and their implication on the overall QE3 timeline, we're left to assess the impact of policy changes that are more likely to arrive in March 2014, with much less of a preconceived notion as to the implication on the QE3 timeline.  In other words, things aren't quite as simple--if for no other reason than the following question: If employment data continues deteriorating, how indicative is this of the labor market picture into the first quarter of 2014?  Sure, we can observe "bad vs good" today, but we have to then consider if it necessarily implies "bad vs good" in 4-5 months.

Such uncertainties likely serve to keep major swings at bay, but the next 8 trading sessions will be very informative in that regard, and today is the 2nd most potent!  That's largely because it has the second most potent read on the labor market via the ADP Employment report at 8:15am.  The FOMC Announcement in the afternoon isn't expected to be "new and different" in any sort of way that could hurt rates, but any FOMC Announcement is a wild card.  To be sure, they will not be announcing any reduction in bond buying.  If anything, markets are waiting to see what sort of dovish turn the statement might make.

Charts

A look at the recent holding pattern in 10yr yields and MBS...

MBS...

Bonus chart: Why should I care about this "jobs hard to get" index in yesterday's Consumer Confidence numbers?

(unemployment rate in orange)