When we talk about "summertime volatility," we're NOT talking about the sorts of big day-to-day swings seen earlier this year.  Instead, summertime volatility tends to create an environment where trading levels can get pushed around more easily during any given day, but with no major shocks to the bigger picture.  Not every day qualifies.  Indeed, we usually see them on Mondays with limited economic data.

Today was such a day.  Believe it or not, the Empire State Manufacturing Index and NAHB Housing Market Index do indeed qualify as "limited economic data" in the sense that they don't typically move markets.  More importantly, market participants considering extending the weekend through Monday wouldn't hesitate for either of these reports.

On the occasions where the usually-inconsequential reports come in very far from the median forecast, they have a bigger impact than they otherwise would.  This has to do with the lighter volume and less-liquid trading environment making every traded dollar count for a bigger piece of the pie than it would if a more normal amount of trades were taking place. 

As such, when this morning's Empire State Manufacturing Index fell to the lowest levels in 6 years, markets reacted.  Bonds rallied well.  MBS rose nearly a quarter point before leveling off and trading sideways into the afternoon.  Lower Treasury yields enticed several companies to price corporate bond deals this afternoon, pushing rates back in the other direction (more supply for bond markets overall).  We stayed green though, thus keeping the recent rally intact (from July 14).