"Leak" is definitely one of those words that, if you say it enough, it starts to sound funny.  One way to hear it pretty reliably is to tune in to the Financial Times a day before EU Summit Conclusions are released.  They always "leak" the conclusions/draft, as they did with today's headline: "Leaked EU summit conclusions: Draghi left hanging?" 

The draft itself is one of the most boring things you could read.  They always are.  But some have suggested the takeaway is that ECB's potential QE efforts in 2015 will be delayed past the beginning of the year.  Quite a few market participants are currently looking for some movement on QE in January or February, so this was a bit of a foil for that optimism.  As we would expect, German yields rallied and peripheral countries sold-off (by "we," I mean "I," because it's definitely not a mainstream point of view that an absence of QE benefits German yields at the expense of Italy, et. al, but it certainly is a view that continues to be supported by market movement).

That's all a bit confusing.  Let's break it down:

  • The ECB might buy government debt
  • If they do, it's expected to be weaker countries, but big enough to make a difference in the Eurozone economy, like the PIIGS
  • Germany wouldn't likely see direct investment
  • Market participants see this potential QE as a "signalling mechanism" that could help arrest a troubling downward slide simply due to the psychological victory ("hey... the ECB just brought out the big bazooka!  They DO have our back!")
  • Ergo, the more likely QE becomes, the more PIIGS yields rally relative to German yields.
  • The less likely QE becomes, the more German yields rally as the economic and inflation situations are seen as increasingly hopeless (crappy economy and zero inflation drive yields down)
  • The confusing x-factor here is that German yields are generally rallying anyway.  So they're not in a perfect opposite relationship with PIIGS yields.  They just do more to move in opposite directions when there's a new piece of important info on QE.

All of the above accounted for German yields dabbling in more all-time low yields today.  In turn, this helped US rates hold their ground. 

Stocks and oil were also helpful.  Bond markets had slipped into negative territory just before the stock open, but bounced back as stocks slid lower.  10:30am brought a big beat in Oil surpluses, further pressuring oil prices, stock prices, and bond yields.  That isn't always a correlation to be counted on, but the bigger shocks cause bigger bets.

Oil and stocks have been carving out gradual supportive lows into the early afternoon, and bond markets don't need to be told twice that the party's over.  10's and MBS just turned neutral again and are waiting on the 1pm 10yr Treasury auction.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
100-20 : -0-01
FNMA 3.5
103-28 : +0-01
FNMA 4.0
106-14 : -0-02
2 YR
0.5960 : -0.0200
10 YR
2.2130 : +0.0000
30 YR
2.8730 : +0.0040
Pricing as of 12/10/14 12:53PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:57AM  :  And Now Regaining That Lost Ground
9:35AM  :  Losing Some Ground after Quiet Overnight Trading; What's With the Big Drop in MBS?

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  ""Crude inventories rose by 1.5 million barrels in the last week, compared with analysts' expectations for an 2.2-million-barrel draw.""
Matthew Graham  :  "I would think it would have been closer to the 10:30am report time, but if we're seeing big moves around this time of morning, it could be some sort of inexplicably delayed reaction to the Crude report."
Frank Hanna  :  "what just happened?"
Sung Kim  :  "wow - this oil thing is really getting crazy"
Christopher Stevens  :  "The Fed has worked its way into a tight corner. You don't want to come out swinging and then get knocked right back in the corner again. Janet has her hands full. "