It's getting to be fairly popular to dismiss the ongoing efforts to stave off a default in Greece as "can-kicking," etc. We're guilty of this, but remain generally in agreement that can-kicking is one of the best ways to describe what's going on. We're not under any delusions that any "positive" outcome in any similar present or future negotiations is more appropriately seen as an "absence of a more negative outcome." Indeed, restoring Greece to an ideal level of fiscal health is not on the table any time soon. It's all about avoiding catastrophe.
But a certain measure of catastrophe has been priced into recent phases of domestic bond market bullishness. So whether yesterday's passage of the Greek Bailout amounts to can-kicking or not, it's "something more" than we had on Friday, and thus a fairly sizable detractor from bond prices today, including MBS.
Detractor, yes. End of the world? Probably not, and I think that's
evident in the fact that 10yr yields, for instance, are only as high as
2.05 to 2.08 over the past few hours. It's as if to say "yes, we see
something improved, maybe, but we certainly don't think Greece or the EU
is out of the woods."
The other major consideration about today's movements is that they could be a good example of a phenomenon that is sometimes seen in observing trading levels and assessing the importance of market moving news. It happens when markets seem to be paying attention to data quantitatively, but the qualitative analysis suggests that they don't pay so much attention. The problem arises in quantitative movements begetting more of the same, with an increasing level of frustration among the purveyors of the qualitatively negative viewpoint.
We've touched on this recently and in the past with references to riding on and/or swimming with currents and waves as opposed to trying to swim against them. In other words, even if the sentiment that's generally dismissive of the notion of progress in Greece is the most appropriate one, market movements are market movements, and the world's most significant benchmark for US Bond Markets is currently confirming a break out of a recently bullish trend, testing the 50% retracement from the post-August-FOMC rally range, and tested through its 100-day moving average by the most since that rally began, all today.
As goes 10yr Notes, so too goes MBS, for the most part. Fannie 3.5's have broken below their pivot at 103-10 and today are experiencing their most significant break of the long term positive trend channel seen below:
Is it the end of the low rate world? No way to ever know such things for sure. Although we'd say that last week's rates are very likely not gone forever, today's movement and volume is nothing to take lightly. Granted, nothing definitive has happened in a quantitative sense, but it's up in the air at the moment. We could bounce back within recent ranges or break them in the coming days, and that would mean a certain amount of time riding currents and waves that might run counter to our general beliefs about the situation in Greece.