Bond Market Off to Slow Start. Irish Bailout Gets Mixed Reaction

The big story for global financial markets today is the EU/IMF's 80-90 billion euro bailout for Ireland. Here is an excerpt from the official EU statement...

"Ministers welcome the request of the Irish Government for financial assistance from the European Union and euro-area Member States. Ministers concur with the Commission and the ECB that providing assistance to Ireland is warranted to safeguard financial stability in the EU and in the euro area."

WARNING: this whole "Ireland thing" is not yet counted in the bond market's win column. Though it has helped lift low rise asset prices coming in to the day (AQ says it is more a factor of the Fed's coupon lifts), the warning is due to the fact that the agreement to the bailout is still a very recent thing. There is already backlash from coalition party hoping that the bailout can prompt support for early elections to oust officials from the currently unpopular government.  This doesn't necessarily mean anything for our bond market, but we should be cautious that it COULD mean something, maybe...

Combine that with extremely low volume both today and Friday, and suddenly the fairly epic precipice upon which treasury yields stand starts to look a little less epic (charts below). 

But!

We'll take what we can get when we can get it.  And what we're getting at the moment is a pleasant lift in MBS prices and another positive step toward the completion of the QEII cleansing process. The following chart has a bit of Friday thrown in for context.  Bottom line is a Fannie 4.0 that's about 10 ticks higher at 101-26.

Let's turn to treasuries and futures for a bigger picture... 

Taking a look back before last week and through this morning, a distinct trading range seemingly devote exclusively to last week emerges above 2.80.  It also lays a technical resistance barrier in front of us that we'd need to see broken WITH VOLUME in order to more firmly consider that last week did indeed constitute the crux of the Qe2 cleansing process.  Lastly, note that we seem to be reaching said barrier sooner than we otherwise might due to Ireland + low volume.

Treasury futures show another angle of the same story.  We can see the 124-11 level that got so much of our attention last week as it held up support, then breaking in intraday trading, and closing back in the safe zone.  Some market technicians will view this intraday dalliance at the "buy signal" in a strategic sense.  Whether it is or it isn't is an ongoing matter of debate, and one which I think it would be irresponsible to take a firm position in.  Moreover, notice last week's volume (with the exception of Friday) compared to what we've seen so far today...  Yes... Things are thin and illiquid, and thus sadly less of a foundation upon which to lay our hopes and dreams of mind-bending MBS rallies. 

On a final note, note sure why it's super significant this morning, but some Mondays, I just feel like seeing how stocks are doing...

Pretty worthwhile peek actually...  1190 is an important level...  To whatever extent we see reestablishment of an almost completely broken stock lever from last week, a drop below 1190 could benefit bonds, I suppose.  Then again, if last week's theme remains, it could also just coexist with another bond sell-off!  Moral of that story: don't look to stocks as a directional guidance giver until we have a 20/20 hindsight view that the stock lever is in effect.  This chart is given "just because."

2yr note auction coming up at 1pm! Remember with many investors distracted by the holiday week ahead, volume is expected to remain light and trading conditions volatile.