"What is the matrix?"

This could easily have been typed by an inquisitive bond market as it sought to better understand the mysteries of its own existence, but in this case, the question would be more like:

"What is a Fed rate hike?"

Slowly but surely, we've been on a similar journey of discovery, replete with hints being dropped by supporting characters and cryptic instructions for our self-preservation.  For instance, these past few weeks would be the point in the movie where Morpheus tells us he can guide us to the office at the end of the hall.  The only job for bond markets is to stay low and avoid detection, OR ELSE...

Much like Neo had no idea what the implied "or else" was in the movie, bond markets really don't know what the consequence will be of next Wednesday's Fed Announcement.  They could hike or they could do nothing, but either of those eventualities could send longer-term rates (which includes mortgages) higher or lower.  So it only makes sense for us to be holding a narrow, sideways range to the best of our ability until we have a better sense of what the matrix even is.

And that's the story of the day, week, and month.  Rates are trying not to make any major waves until they figure out what the heck is going on.  The exclamation point on that thesis is the fact that the past 7 weeks have seen 10yr yields end the week in the same 8bp range.  The one exception was the Chinese currency/stock crash week ending August 21st.  Other than that, 10's closed between 2.13 and 2.20 since the week ending 7/31.

For those of you who wanted some real 'recap' as opposed to motion picture metaphor, bond markets traded slightly better today, both before and after econ data.  that said, the economic data didn't look like it had any direct bearing on the moment-to-moment price action.  Fannie and Freddie 30yr fixed MBS will look like they began the day in negative territory, but that's due to "the roll" (MBS settlement process), whereby today's prices are October coupons and yesterday's were September coupons.  September coupons were always trading higher than October coupons, so switching from one to the other makes it look like prices dropped.