Bonds continue following the broader global correction leading back from the stock market weakness at the end of September.  This has been a classic "risk-on" move where stock prices and bond yields are rising together.  It has also been a classic consolidation in the sense that each day's trading range has been increasingly narrow this week.

These types of consolidations are typically seen leading up to some important event--some piece of data or news that will provide guidance on the direction of the next trend.  This is especially true when both stocks and bonds are consolidating together as they are now.

In scouring the landscape for events with that sort of street-cred, there's really only one possibility for the entire week--today's release of the FOMC Minutes at 2pm.  Bond markets have weakened steadily leading up to the Minutes.  Even the decent 30yr bond auction didn't make for any bounce back in a friendlier direction.  With the net change in 10yr yields being only about 2bps, it's nothing to write home about just yet.  Fannie 3.0s are down 5/32nds and there is ongoing negative reprice risk due to the timing of the losses.

On a final note, simply because we think we're seeing a set-up for a big-ticket event, it doesn't mean that the results will match.  It's all about "potential energy."