Markets Surprisingly Quiet Before Yellen’s Speech

Mortgage rates were unchanged today, which in some ways was surprising.  This is likely the last day of very narrow trading in the bond and mortgage markets.  Sometimes markets will take a "lead-off" ahead of a big potential market mover if there's an underlying predisposition that traders have been 'hiding' (for lack of a better term).  This has resulted in some surprisingly big moves ahead of things like NFP releases and Fed Announcements over the years.  Even without such a big movement, we still usually see some signs of increased bet-making on the run up to the big event.

But not this time.  Bonds gave no clues about what they might be thinking ahead of Yellen's Jackson Hole speech tomorrow.  That said, they did react in some small way to the stronger Durable Goods numbers.  Before that, bonds were in just slightly stronger territory through the overnight session.   When Durable Goods came out, Treasury yields rose by a whopping 2BPS.  They promptly fell back to 'unchanged' by the time I wrote my morning report.

The afternoon brought a fairly lackluster 7yr Treasury auction, which applied another token amount of pressure on bond markets.  All of this is much ado about nothing, however, because yields are very much inside the same old range.  Moreover, today's trading range was one of the narrowest of the already-narrow range. 

Yellen tomorrow and Q2 GDP should generate enough news to break the deadlock in the bond markets. The wishy-washy Fed comments from everyone from the mail room to Wm. Dudley and Stanley Fischer have waded in recently but the same double talk that has led to the Fed’s increasing irrelevance in terms of what markets may expect. That will not change with Yellen, she has let the Fedspeak to continue unabated.

In a vast sea of uninteresting bond market movement, we can at least look forward to tomorrow.  Yellen's speech is so hyped that it would be interesting to simply see whether it moves markets or not.

In summary and in a stunning move, rates were unchanged today.  Well, not really stunning, given that they have been in a tight range for the last month.  Tomorrow gets interesting, as Chairwoman Yellen makes her remarks from the Jackson Hole Economic Summit.  The more economically bullish she is - the more rates will rise.  If she is as equivocal as most Fed statements, we may stay flat, but my hunch is she will include enough positive rhetoric to convince markets a rate hike is nearing.  That's far more likely than her citing economic weakness, which would help rates.  Unless you really like "action" and adrenaline is your drug of choice, it might be best to lock.