It's almost as if markets slept in for the next 4 days of the week after the morning alarm indicated that Greece's bond-swap negotiations were still in limbo. We could well imagine the potentially interested bond trader saying "wake me up when it's over." In this case the "it" would refer to just one of the many phases in the ridiculous parade of "maybes," "yeah buts," and "it's unclear whether or nots" that have come to define the Greek "situation."

Perhaps there's some sort of script at work here.... Risks are called out, markets fear Greek withdrawal, trade accordingly, then the counterpoint comes in, then it's shot down, then new news about some program/initiative/meeting/phone call/negotiation/summit/etc... takes markets back to the other side of the ping pong table, then fails to pan out as planned, leading back to the same initial questions that sparked the panic. Vicious cycle x 10.

But fool me 17-18 times, shame on me! Market participants are starting to simply not react to the wolf cries, instead waiting for meatier details to emerge. And so it is that days like today happen... Bond markets fly in quite bullish holding patterns, ready to break the range or bounce within it, but not fully committing to either one of those moves until more conviction is inspired.

On a side note, we'd almost completely disregard the late day price declines in MBS. Most of the weakness hit right at the 3pm close as volumes in benchmarks picked up for the first noticeable time since Friday morning, a clear indication that tradeflows were pushing MBS lower in illiquid, after-hours trading conditions (as opposed to MBS experiencing weakness for some fundamental reason). Most lenders will not think twice about this weakness, but one or two might see justification for a negative reprice.

One of the most striking features of the period before the Great Recession is the strong positive correlation between house price appreciation and current account deficits, not only in the United States but also in other countries that have subsequently experienced the highest degree of financial turmoil. A progressive relaxation of credit standards can rationalize this empirical observation. Lower collateral requirements facilitate access to external funding and drive up house prices. The current account turns negative because households borrow from the rest of the world. At the same time, however, the world real interest rate counterfactually increases. Nominal interest rates departing from a standard monetary policy rule in leveraged economies, as well as foreign exchange rate pegs in saving countries, help reconcile a demand-based explanation of house price booms and current account deficits with the evidence on real interest rates...

For being at all-time highs, MBS have been trading in a range so narrow that it borders on silliness. This is partly a factor of organic resistance and partly a factor of broader bond markets simply trading narrow ranges this morning.

If 10's were to break much above 1.85, then the supportive pivot seen on the MBS chart (around 103-25) could be at risk. Even then, we're talking about a price level that is less than eighth away from where we are now!

Moral of this short story is that not much is going on at the moment. Volume has been even-keeled and there's a fair bit of it, but everything is driving sideways sideways sideways for now.

follow link contains some longer term charts: