(From MBS Live!) " Greek Referendum Rocks Markets At The Open, Or Does It? 8:42AM: The "big" story this morning is that Greek PM Papandreou has called 2 surprise votes: one over the confidence in his governance set to occur by the end of this week and the bigger one on whether or not to proceed with the proposed bailout structure (about 3 months from now). Yes, you're reading that right... It's the Monday after the Thursday when the most significant solution to the Greek debt crisis was finally hammered out, and now Papandreou is going to put it to a vote (after the vote on how much folks like him). This then, is the news that is sending shockwaves throughout markets this morning? Bringing the 10yr yield back to 2% and Fannie 3.5's over 102? Sort of... Rather, this news is the spokesperson for a much broader collection of data, ideas, and fears supporting the "risk-off" trade that lay dormant while the "risk-on" camp had their day in the sun (brief day). Looking at overnight markets, stocks were well on their way to current levels before any news out of Greece. MF Global just filed the 8th largest bankruptcy in history. Italy increasingly looks like a 2nd, and more severe "Greece." And the list goes on... Bottom line, the referendum is the big news of the day, but look at it more like one brave soldier in an army that turned the tide of battle. There are plenty of other players. With that bit sorted out, here's a quick check of current levels (updated 10:05am)Fannie 3.5's up 16 ticks at 102-10Ginnie 3.5's up 17 ticks at 104-1010yr yields down 10 bps at 2.005yr yields down 5 bps at 0.91Expect MBS to lag TSY's into the risk-off trade but rate sheet improvements to have room to keep pace with those tepid MBS gains. What's a quarter point among friends when Greek panic resurfaces?! Parting thought: this is like a new version of Groundhog's day and Greece not only saw its shadow but got freaked right the heck out by it. 3 more months of uncertainty."
Take a look at what this morning's gains do for the long term charts. Concrete ceiling was a ceiling once again last night and a floor once again this morning.
10 yr notes have only taken 3 days to trade as high and as low as just about anyone thought they would following the EU Summit. Bravo!
Bond market gains are stock markets loss. On the verge of falling back into the abyss of August 8th - October 20th
In terms of volatility metrics, stocks are already back in the danger zone. Take a look at the VIX back over 33 at the moment:
The morning's economic data did little to move markets. ISM Manufacturing came in at 50.8 vs a consensus of 52.0, but most of the move was attributable to a drop in prices. New orders were actually up to their best levels since 4/2009. Bit of a mixed bag. In a separate report, Construction Spending grew, but at a slightly slower than expected pace--a relative non-event compared to the bigger news of the morning. The only question now is whether or not markets will truly be relegated to the same sort of volatility and EU Headline-Watching seen over the past 3 months.
Whatever the case, rate sheets have done quite well this morning. PLEASE remember to account for potential reprices for the worse due to "PIPELINE CONTROL!" Risk factors include:
1. lender in question has released unexpected reprice for the worse in the past during a strong rally
2. you hear or otherwise discover the lender in question to be extremely busy or to be taking a lot of locks
3. lender in question improved in price by more than other lenders or is simply currently priced advantageously compared to other lenders
Use your own discretion and past experiences with a particular lender and be aware of the potential for high lock volume today and all that comes with it, including the occasional, mysterious reprice for the worse. Bottom line, if it looks like a great lock opportunity, there's no guarantee it will stick around simply because MBS prices are holding.
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