Domestic bond markets edged back into territory not seen since the week of the Italian election--the last major bullish event for Treasuries and MBS. This time around, Cyprus is the source of the drama with an on-again, off-again (and on-again?) vote on the controversial bailout terms that rocked markets early yesterday morning. The biggest leap today came after rumors began circulating that the Cypriot Central Bank said it would leave the Euro-zone if a bailout bill wasn't passed by Parliament. Various Hatfield and McCoy headlines have followed as Cyprus and the EU go back on forth on who's to blame and how they're going to fix it. The situation, in general, CONTINUES to be "wait and see," but at least has the benefit of being bond-market-positive at the moment.
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Bond Market Hit Best Levels On Cyprus Exit Rumors
Though there are no confirmed statements, the Cypriot Central Bank is rumored to have said that it will leave the Eurozone if a bailout bill isn't passed. This isn't far from most market participant's expectations, but is still having a headline-shock effect pushing Treasuries and MBS to their best levels of the day, sapping the Euro and Equities' prices.
It could be a knee-jerk that bounces back when more clarity arrives or it could be extended by said clarity. Whatever the case turns out to be, 10's are currently down to 1.913 and Fannie 3.0s are up 6 ticks to 103-04. S&P's are off roughly 6 points from opening levels. Lenders that priced early may soon consider positive reprices if current levels are held or improved upon.
Holding Modest Gains, Waiting For Cyprus To Vote
Bond markets began the overnight session weaker, heading higher in yield for most of the Asian trading hours. The stock lever was well-connected and stock prices began to fall along with Treasury yields. This was most salient after a spokesman for Cyprus said that Parliament would not be able to approve the bank levy.
Several hours later, details emerged regarding some structural changes to the plan that would spare deposits under €20k, and adjust the percentage to 6.7 for deposits from €20k - €100k. Anything over that would get hit with 9.9%. We'd emphasize the murkiness of the details at this point though. Even within the past hour, other reputable sources are mentioning that Cyprus considering removing the levy on everything under €100k and raising it over the previously sacred 10% mark on deposits over €100k. This sounds a lot like the 15.6% plan mentioned in wires late yesterday.
Whatever the case, the vote--if it happens today--should be coming up in a few hours and more than anything, this dominates the market's focus.
Housing Starts data was completely glossed-over in terms of market reaction. S&P Futures bottomed out at 6:50am and moved back to overnight highs, being careful not to break them. Treasuries acquiesced to the "risk-on" bounce, but certainly haven't followed equities, preferring instead to simply level off in the middle of yesterday's overnight session.
This leaves 10yr yields at 1.9355 and Fannie 3.0s up 3 ticks at 103-01. S&P futures are 2.75 pts higher at 1549.50 vs overnight and AM highs near 1551.
There are no further economic reports out today, and to reiterate, we're waiting on Cyprus news, including, but not limited to (and not necessarily counting on) a parliamentary vote.
ECON: Housing Starts Slightly Higher Than Expected
- Feb Starts 917k vs 915k Consensus
- Jan Starts revised to 910k from 890k
- Permits 946k vs 925k Consensus
- Both metrics highest since June 2008
- Market Reaction: Housing Starts traditionally have a high margin of error. This print is no exception with a ±13.7% on Starts. Even then, we wouldn't expect a major reaction to this data given the other events in play r soon to be in play (Cyprus, FOMC...)
The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced the following new residential
construction statistics for February 2013:
Privately-owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 946,000. This is
4.6 percent (±0.8%) above the revised January rate of 904,000 and is 33.8 percent (±1.4%) above the February 2012 estimate of
Single-family authorizations in February were at a rate of 600,000; this is 2.7 percent (±0.7%) above the revised January figure of
584,000. Authorizations of units in buildings with five units or more were at a rate of 316,000 in February.
Privately-owned housing starts in February were at a seasonally adjusted annual rate of 917,000. This is 0.8 percent (±10.6%)* above
the revised January estimate of 910,000 and is 27.7 percent (±13.7%) above the February 2012 rate of 718,000.
Single-family housing starts in February were at a rate of 618,000; this is 0.5 percent (±12.1%)* above the revised January figure of
615,000. The February rate for units in buildings with five units or more was 285,000.
Privately-owned housing completions in February were at a seasonally adjusted annual rate of 711,000. This is 0.6 percent (±10.0%)*
below the revised January estimate of 715,000, but is 24.3 percent (±12.2%) above the February 2012 rate of 572,000.
Single-family housing completions in February were at a rate of 574,000; this is 3.6 percent (±11.7%)* above the revised January rate
of 554,000. The February rate for units in buildings with five units or more was 130,000.
Live Chat Featured Comments
Victor Burek : "some russian company said they woudl pay it all if they got exclusive rights to mine resources"
Matthew Graham : "RTRS - All very dodgy and nothing confirmed but with mkt on edge EUR gets hit"
Andrew Horowitz : "i can see Russia coming in with a loan to Cyprus for some portion of it"
Matthew Graham : "RTRS - Chatter is that Cyprus CB says will leave Euro if bill not passed"
Matthew Graham : "OK, now seeing a report that rumor mill says Cyprus Central Bank claims Cyprus will leave the EU if a bill isn't passed"
Andrew Horowitz : "no i think they believe they will be able to force the eu into a compromise of some sort or they will raise taxes on the entire population"
Victor Burek : "mg, is my thought process on this right? if they dont get the bailout, they basically have to exit eu?"
Victor Burek : "if they dont get the bailout, they have to exit eu"
Victor Burek : "delay cause they cant pass it, which means most likely exit from eu"
Matthew Graham : "to reiterate, this is not the news causing the spike, but here's that story: http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_19/03/2013_488584"
Matt Hodges : "cyprus delayed vote.. shocker"
Matthew Graham : "The vote is off btw, but that news is a bit older now."
Andrew Horowitz : "somethins up"
Matthew Graham : "concomitant moves in Bunds/Euros/et. al."
Andrew Horowitz : "i don't see anything either, best guess a rumor at the cbot"
Matthew Graham : "Looks like something just hit. No wire here yet"
Victor Burek : "i'm sure some are doing that, but looks like most believe this is a one off"
Dirk Postupack : "If I was living in a country on the brink of default, and saw what might happen in Cypress, would i be the first to w/draw all my money out of the bank and put it in a safe in my house? Protect your Assets, and why is this not happening over in Europe today?"
Victor Burek : "this sure does contradict the home builder sentiment from yesterday"
Matthew Graham : "RTRS - US FEB HOUSING PERMITS 946,000 UNIT RATE (CONSENSUS 925,000) VS JAN 904,000 UNIT RATE (PREV 904,000) "
Matthew Graham : "RTRS- US FEB HOUSING STARTS 917,000 UNIT RATE (CONSENSUS 915,000) VS JAN 910,000 (PREV 890,000) "
Matthew Graham : "RTRS- US FEB HOUSING STARTS +0.8 PCT VS JAN -7.3 PCT (PREV -8.5 PCT) "
Victor Burek : "cyprus submits revised bill, no tax on deposits under 20k"