Earlier lows for MBS were relatively short lived owing to a series of headlines that poked holes in the earlier "risk-on" sentiments. The first of these was the ECB's rejection of Cypriot revisions to the bailout deal, followed up more recently by the news that the ECB is RAISING the required contribution amount from €5.8 bln to € 6.7 bln citing "worsening conditions." I guess you could say the ECB just repriced for the worse?

Humor aside, where once there was red, now there is green. MBS are still broadly in the same range that prevailed earlier, but now pushing the highs instead of the lows. Negative reprice risk is replaced by neutrality and the outside possibility of positive reprices (already one from Provi)

It's getting late in Europe and thus the headline mill may slowly stop churning at such a ferocious pace. Bottom line: cruising in solid territory into the weekend with more positive reprice risk than negative. The only major caveat is that we'll be susceptible to European headline risk on Monday morning and it could take things in either direction in a big way.

levels:
Fannie 3.0 +0-03 at 102-29
10yr yields flat at 1.9163
S&P up 10 at 1555.20

Coming into the day, we knew that Italian political...

Fannie 3.0's opened flat to yesterday's latest levels, but are 2 ticks higher now at 102-28. Meanwhile, 10yr yields are unchanged vs 5pm levels and 2bps lower vs 3pm levels. A low volatility morning for treasuries along with some urge to correct following 2 days of sharp underperformance are helping MBS close the gap, though they continue to underperform significantly on the week.

Overnight moves were uneventful in the big picture though some jolts were seen around the relevant Cyprus bullets. Chief among these are the following:

• Russia says no thanks to helping out Cyprus
• ECB Says bank defaults if no plan B by Tuesday, will impost capital controls
• Bank of Cyprus urges lawmakers to "take the deal!"
• Cyprus gov says they'll approve a plan B by Tuesday and prevent bank defaults
• "Bad Bank" scenario sees losses as high as 40% for uninsured deposits
• Cyprus may vote on Euro membership today!

Against that backdrop, European markets traded fairly calmly overnight, sensing that bigger considerations arrive next week. That doesn't mean we won't see tape-bombs today, but that's generally how it was traded overnight. Bund yields and Euros rose steadily from the outset of European hours and topped out just before 8am, helping Treasury yields do the same.

Earlier in the morning, 10yr yields saw strikingly regular technical resistance at 1.902, setting this up as a level that could come into play as resistance on any rally attempts this morning. For now, "so far so flat," with the aforementioned moderate MBS outperformance. We're on guard for Euro tape-bombs, but not necessarily expecting them. Italy's president is expected to make a statement today regarding the formation of a government, which could steal some spotlight from Cyprus. We're also expecting a relatively well-connected stock lever in the morning hours, so a strong open (coming right up in 5 minutes) could cause some volatility.

Earlier lows for MBS were relatively short lived owing to a series of headlines that poked holes in the earlier "risk-on" sentiments. The first of these was the ECB's rejection of Cypriot revisions to the bailout deal, followed up more recently by the news that the ECB is RAISING the required contribution amount from €5.8 bln to € 6.7 bln citing "worsening conditions." I guess you could say the ECB just repriced for the worse?

Humor aside, where once there was red, now there is green. MBS are still broadly in the same range that prevailed earlier, but now pushing the highs instead of the lows. Negative reprice risk is replaced by neutrality and the outside possibility of positive reprices (already one from Provi)

It's getting late in Europe and thus the headline mill may slowly stop churning at such a ferocious pace. Bottom line: cruising in solid territory into the weekend with more positive reprice risk than negative. The only major caveat is that we'll be susceptible to European headline risk on Monday morning and it could take things in either direction in a big way.

levels:
Fannie 3.0 +0-03 at 102-29
10yr yields flat at 1.9163
S&P up 10 at 1555.20

Coming into the day, we knew that Italian political...

Fannie 3.0's opened flat to yesterday's latest levels, but are 2 ticks higher now at 102-28. Meanwhile, 10yr yields are unchanged vs 5pm levels and 2bps lower vs 3pm levels. A low volatility morning for treasuries along with some urge to correct following 2 days of sharp underperformance are helping MBS close the gap, though they continue to underperform significantly on the week.

Overnight moves were uneventful in the big picture though some jolts were seen around the relevant Cyprus bullets. Chief among these are the following:

• Russia says no thanks to helping out Cyprus
• ECB Says bank defaults if no plan B by Tuesday, will impost capital controls
• Bank of Cyprus urges lawmakers to "take the deal!"
• Cyprus gov says they'll approve a plan B by Tuesday and prevent bank defaults
• "Bad Bank" scenario sees losses as high as 40% for uninsured deposits
• Cyprus may vote on Euro membership today!

Against that backdrop, European markets traded fairly calmly overnight, sensing that bigger considerations arrive next week. That doesn't mean we won't see tape-bombs today, but that's generally how it was traded overnight. Bund yields and Euros rose steadily from the outset of European hours and topped out just before 8am, helping Treasury yields do the same.

Earlier in the morning, 10yr yields saw strikingly regular technical resistance at 1.902, setting this up as a level that could come into play as resistance on any rally attempts this morning. For now, "so far so flat," with the aforementioned moderate MBS outperformance. We're on guard for Euro tape-bombs, but not necessarily expecting them. Italy's president is expected to make a statement today regarding the formation of a government, which could steal some spotlight from Cyprus. We're also expecting a relatively well-connected stock lever in the morning hours, so a strong open (coming right up in 5 minutes) could cause some volatility.