Both stock prices and bond yields have been on the decline since topping out on Friday. While stocks were sideways to weaker in the overnight session, bond markets began improving from the start. By 4am, 10yr Treasury yields were at their lowest levels since the wee hours of Wednesday morning. After a brief pause for reflection into the domestic open, bond markets continued to rally as stocks continued to slide sideways. Perpetual waiting for a Greece deal, Catalonian elections, weak Italian Consumer Confidence, debt auction supply in the EU periphery, and looming Fiscal Cliff concerns are all potential contributors to the "risk-off" movement. Whatever the case, MBS opened up in much-improved territory this morning, back in line with Monday/Tuesday of last week, and have continued to improve in a calm and orderly manner since then. Still no word on whether or not Greece's bailout payment will be approved today or not, but that could be the next cause for a directional shift in bond markets.
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Bond Markets Stronger To Begin Week
Remember the "Choose Your Own Adventure" books? Today's moderate bond market gains are suggesting a similar directive--something to the tune of: "choose your own market-mover." Bond markets are in noticeably better territory with MBS up over a quarter point and 10yr Treasuries closing in on a 5bp drop. With respect to those gains, we've heard/seen several overnight or ongoing events discussed with varying degrees of importance and attribution.
For starters, news outlets have given an increasing amount of coverage to elections in the Catalonian region of Spain. In short, quite a few Catalonians want to secede from Spain and Spain isn't too fond of the idea. The bond market implication is a simple "political risk/uncertainty" bid for safe-haven Euro zone bonds which tend to improve in concert with US Treasuries.
From the relatively complicated topic of election politics in a regional Spanish government, we move to relatively less complicated "stuff," also getting some attention. This includes weaker Italian Consumer Confidence numbers out overnight as well as mere generalized anxiety ahead of potential agreement on Greek debt-reduction terms, which is the next requirement for a much-needed disbursement of Greece's next tranche of bailout aid.
One of any several ancillary supportive tidbits can be thrown into the mix here, including domestic concerns like our own generalized anxiety about the Fiscal Cliff, as well as a simple technical correction from a holiday week that saw bond markets drift to weaker levels in low volume. It's not that volume is that much better this morning. It's still relatively low compared to pre-holiday trading, but that should continue to change as the week progresses toward "month-end" on Friday and as the data and auction cycle ramps up throughout the week.
There hasn't been any significant data on the agenda this morning and there isn't anything in terms of economic reports for the rest of the day. That said, markets are still waiting for word from the Eurogroup meeting regarding Greece. Despite the fact that Greece is an ongoing study in can-kicking, this still has the potential to move markets today. An inked bailout agreement is likely to weigh on bond markets to some extent whereas a delay would likely help maintain the positivity.
Live Chat Featured Comments
Matthew Graham : "As soon as their liquid enough to be indicative. Not quite there yet, but perhaps soon. "
Nathan Stotlar : "MG, I see a couple other websites are posting 2.5% quotes. Any idea when we will see them here? If this was already covered, sorry, I've been out of the office for a couple weeks."
Matthew Graham : "http://www.federalreserve.gov/faqs/money_15070.htm"
Jay Waters : "elaborate "twist" ...?"
Matthew Graham : "Scheduled Fed "Twist" buying starting now in 25-30yr maturities."