I woke up this morning to an automated alert from MBS Live letting me know I'd need to hustle to the desk and explain whatever it was that caused the friendly spike more than 6bps lower in 10yr yields (all the way down to 3.0%).  The safest bet was that it was something to do with Italy, and my chart of Italian spreads vs German Bunds didn't disappoint.  Equities markets happened to be playing ball as well.  It's been a good morning to be a safe-haven US Treasury bond (especially longer duration bonds like 10 and 30yr securities).

2018-5-23 open

The net effect on the bigger picture for the US bond market is that it sets us up to challenge the important 3.05-3.06% floor (obviously).  In fact, it gives us a huge head start for the day.  Remember the lessons from bonds 2-3 weeks ago though.  As we attempted to break below 2.95%, there was at least one day where we were this far below our target.  But bonds were never able to close below 2.95% for 2 consecutive days.  In other words, we still need to hold below 3.05% tomorrow in order to confirm the shift.

2018-5-23 open

Depending on the source of the information, the Italian President is set to confirm the new Italian government as early as today or as late as tomorrow.  There are serious questions about the qualifications of the nominee for Prime Minister, and no questions about his populism.  In other words, if he's confirmed, Italy would be seen as moving another step closer to being a legitimately ticking time bomb for the Eurozone.  

Given Italy's level of Euro area financial integration, and Italian Eurozone exit would make Brexit look tame by comparison.  That's really the risk that bond markets are beginning to trade.  It's a long way from materializing, but the confirmation of this government is seen as the first step in that potential process.  If an Italian exit were imminent, the safe haven demand for German Bunds and US Treasuries would likely have yields well into 2017's levels.  

All that to say that if it seems like a little bit of Italian political news is moving bonds by a surprising amount, it's because the endgame implies much bigger moves.

As for the rest of the day, we don't have any top tier economic data to digest, but we will get the week's most important Treasury auction at 1pm, followed by the FOMC Minutes at 2pm (a more detailed recap of the conversation behind the Fed Announcement from 3 weeks ago).


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 4.0
101-14 : +0-07
Treasuries
10 YR
3.0173 : -0.0477
Pricing as of 5/23/18 9:03AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Wednesday, May 23
10:00 New home sales chg mm (%)* Apr -2.0 4.0
10:00 New home sales-units mm (ml)* Apr 0.679 0.694
13:00 5-Yr Note Auction (bl)* 36