Bond markets lost ground yesterday, which is notable in the context of recent events because other markets didn't necessarily agree.  By that, I mean the "risk-on/risk-off" pattern that has pervaded multiple asset classes continued heading in directions that had been friendly for US bond markets. 

There are a few things we can take away from that divergence.  The first is one we should always keep in mind and that is that even the best correlations break down from time to time.  Sometimes, the recent movements of a particular market suggest certain risks regardless of what previously correlated markets might suggest.  In other words, bond markets had to choose between following certain representatives of the "risk-off" camp and following their own technical cues suggesting a break in the rally. 

The other takeaway is that when we're talking about so many different market components moving in the same direction, it's highly uncommon for ALL of them to be doing so at similar magnitudes.  A broad-based risk-off movement is the kind of thing that we have to take a few steps back from.  Are all these things GENERALLY headed in the same direction?  Yes.  But the individual, day-to-day correlations are far from perfect.

With the FOMC Announcement coming up tomorrow, today's question is whether bond markets will go through their own preparations for that versus continue running with this "risk-off" crowd.  No matter how much we try to minimize the importance of this Fed Announcement (and there's some room to run, in that regard), there is sufficient reason to give it some credit.  It's still the last one of the year.  It's still a 3-parter (announcement, press conference, and forecast update... considered to be a bigger deal than the 1-parters that only include an announcement).  And it still stands a good chance to include a major change in verbiage. 

So while Fed policy isn't exactly center stage at the moment, the rate-hike timing can't help but be somewhat affected, and of course, global financial markets can't help but care about the Fed's rate hike timing.  All that to say that bond markets reserve the right to deviate from the broader risk-off trading pattern.

In terms of economic data, the day is fairly light, with Housing Starts being the only top tier release.  A big deviation from expectations can move markets, but it hasn't made sense to expect a consistent reaction to this data series.  Even if we get one, it could be easily overridden by subsequent events.