Weaker After Data; How Much Should you Blame the Holiday?

Today offers a very interesting set of circumstances to consider for MBS and mortgage rates.  First, we can safely assume that rate sheets have been erring conservatively heading into the extended weekend and less-liquid month-end environment.  It’s tempting to pass the weakness off as purely a factor of the holiday-light volume, but low volume doesn’t equate to weakness any more than high volume equates to strength.
There were real reasons for rates to move higher this week, just as there were real reason for them to make similar moves during Thanksgiving week last year (Greek bailout headlines, remember those?).  The important difference is that last year offered real reasons for bond markets to bounce back after the holiday weekend, not to mention that there was another full week left in November.
This year, the Monday after Thanksgiving is also the first trading day in December, so any potential help from month-end buying has already played out (though some might be seen in limited quantities on Friday’s half-day).  Whether or not we bounce back from these holiday blues will have more to do with domestic economic data as Monday leads off a busy week with ISM Manufacturing.
Granted, we’ve seen a pretty solid 4-day rally back from last week’s FOMC Minutes get mostly crushed in a day and a half, but that 4-day rally brought bond markets squarely to the CENTER of their long term (through May 2013) ranges.  The technical bounce against that midpoint is a possibility.  Rates are probably more nimble than they seem right now, ready to go either direction based on next Friday’s Employment data, but willing to start taking the proverbial “lead-off” with next week’s early data.