Bond markets returned to something of a middle ground yesterday after recovering from a Greece-inspired risk-off trade.  Last week's key event was the inability of Greek political parties to sign off on austerity measures needed to send the current bailout to vote.  This Wednesday's repeat Eurogroup meeting is made possible by Greece's approval of austerity measures over the weekend, and whether or not Greece receives their current tranche of the proposed bailout will finally see a vote.  All this ushered bond markets in the door moderately worse off than Friday's latest levels to begin the current week, but the skepticism was palpable.

Not only did the bond market sell-off not ever materialize into anything truly ugly, but Greece lent fixed-income bulls a helping hand mid-day after rumors started swirling that the announcement of private-sector haircuts--originally expected to follow the Eurogroup meeting--would be delayed.  That fueled a relatively healthy bounce back for Treasuries, and MBS were happy to follow.  But neither of those markets made it back across key technical levels.  In terms of 10yr benchmarks, 1.95 is a long-standing pivot point; a level that yields tend to bounce against more than they cross.  

For MBS, the equivalent marks center on 103-18 in terms of the most heavily traded coupon: Fannie Mae 3.5 30yr's.  These MBS coupons have been almost entirely supported by 103-18 since late January, rarely if ever even glancing at a lower price.  But starting with Friday's weakness and through yesterday's entire session, 103-18 stood firm as a ceiling.  

It's not uncommon to see our most-watched market metrics moving up to, and sometimes crossing such technical levels ahead of key data.  The assumption would be that MBS are unable to break higher and 10yr Treasuries unable to break lower that these technical levels if the Greek bailout passes on Wednesday.  Between now and then, likely the most significant piece of domestic economic data prints this morning.  Retail Sales seems to be carrying a default "bond-market-negative" connotation with its expected headline of +0.7 per cent versus a prior reading of +0.1 per cent.  The less volatile core reading is seen turning positive to the tune of +0.5 per cent after last month's -0.2 per cent.  

That data hits at 8:30am as well as Import and Export prices.  The latter is quite less significant, but a result that deviates greatly from expectation can still contribute to a move set in motion by retail sales.  The only other piece of scheduled economic data in the US is the 10am release of December Business Inventories, expected to show and increase from 0.3 per cent to 0.5 per cent.  Although this is a moderately significant report, we'd expect domestic economic data to have a tough road ahead in terms of moving markets anywhere for very long.  

Rational or not, the unscheduled European headlines trump our own, and have for some time (with a few exceptions, usually relating to things like NFP and 10yr auctions.)  Even then, the broader, bigger picture trends seem to always only be tested or questioned when major European developments are afoot, whereas domestic data merely moves the averages around in various patterns INSIDE that range.