Bond Markets Add To Overnight Gains Thanks to 800lb Grillo
Italy's Beppe Grillo doesn't weigh 800lbs, but he has been the metaphorical gorilla in the room this morning...
Overnight improvements in Treasuries were moderate at best, and came nowhere near challenging yesterday's mid-day low yields. 10's opened a bp lower in Asia and ratcheted another bp down by 6am despite well-subscribed Italian debt auctions and improving Euro-zone sentiment and business climate indexes.
Treasuries crossed into domestic hours just over 1.86 and MBS came in 2 ticks improved at 103-18. Both began rallying rather immediately and not for any reasons that will be readily apparent in the mainstream media.
German Bunds and Euros began losing steam at their quickest pace of the morning a solid 10 minutes before the Durable Goods release. This is due to comments from Beppe Grillo, who was the largest single party vote winner in Monday's election, saying that he won't support any new government. This effectively suggests Italy will have to go back to elections considering Berlusconi and Bersani are even less likely to end up working together.
Treasuries followed the Euro/Bunds move here. Equities futures actually paid it some mind as well, but drew some strength from positive internals in the Durable Goods report. The funny thing is that you'll probably see headlines elsewhere that suggest "weaker Durable Goods" helped bond markets. In fact, sans Grillo comments, Durables were net negative for bond markets, but weren't enough to trump the positive implications of more Italian uncertainty.
10's are currently down to 1.8465 and Fannie 3.0s are up 7 ticks at 103-22. S&P futures are right in line with 5pm levels. Bernanke and Pending Home Sales are up next at 10am. Again, these have been relegated to "put up or shut up" mode vs the 800lb Italian Gorilla in the room. It's not that the other data (or fed speeches) can't move markets, simply that they'd have to be extra shocking to do so meaningfully.