MBS RECAP: Gains Held

Next week's calendar of economic events is fast and furious, compared to the more slow and serious tones in the week just passed. As is sometimes the case, there's not much on Monday except the Chi-Fed National Activity Index. That'll give markets a change to ease into what should be a very busy rest of the week. This is where the true "trading it out" we'd hoped for today will more likely be seen. The substantial load of economic data includes Consumer Confidence, Case Shiller, New Home Sales, Durable Goods, Beige Book, Jobless Claims, Pending Home Sales, Employment Cost Index, GDP, Chicago PMI, and Consumer Sentiment. Various instances of Fed-Speak dot the schedule, and add to that the 1pm Treasury auctions on the middle three days of the week. That's busy enough as is, but when slotted into the last week of a month, and with Friday falling on the official "month-end," it takes it to another level. If you really want to go catatonic with anticipatory overload, just consider that the following week contains NFP. Sounds like a pretty interesting 2 part show. We'll see you Monday morning for the opening credits.

How better to end an uneventful trading day than, well, uneventfully. What does that look like? It looks like a narrowing into a 1.5 tick trading range (3/64 ths of a point), from a an earlier range that never got wider than 4 ticks (.125 of a point), and all of the above occurring around levels that mark almost the exact midpoint of the week's range. It's hard to get more uneventful actually... Once you consider that it is also the lowest volume day of the month, case closed.... This was basically a vacation day that no one told you about. But boring days that leave MBS 10 ticks improved on the day are fine by us. That's good for a Fannie 4.0 at 100-23. 10yr notes expressed a similar lack of volatility, also narrowing into the PM.

(Reuters) - Greece's sovereign debt crisis will prove unique in the euro zone and will not spread to other countries, European Central Bank President Jean-Claude Trichet said in a newspaper interview on Friday. Speaking the day after euro zone leaders agreed a second bailout package for the heavily indebted Mediterranean country, Trichet insisted that other countries like Italy would take appropriate measures to ensure market confidence in their debt. "I have confidence that all countries in the euro area will not only rigorously keep their present commitments, but will be 'ahead of the curve' and take appropriate measures, as is the case for Italy," he told Germany's Sueddeutsche Zeitung. Asked if euro zone countries were throwing good money after bad by propping up Greece's public finances, Trichet said that "scrupulous" implementation of structural reform in Greece, alongside international technical assistance, was essential. He also repeated calls he made earlier this month for a euro zone finance ministry with powers to impose structural reform on recalcitrant national governments. "Tomorrow it should be possible to impose measures on a country that does not implement the agreed adjustments," he said. "And as for the day after tomorrow ... I think that the Europeans will invent a new type of confederation which ... would have, naturally, a European finance ministry with its own responsibilities."

(Reuters) - Fitch ratings agency declared Greece would be in temporary default as the result of a second bailout, which Athens said had bought it breathing space. But the agency pledged to give Greece a higher, "low speculative grade" after its bonds had been exchanged and said Athens now had some hope of tackling its debt mountain, which most economists still expect to force a deeper restructuring in the future. An emergency summit of leaders of the 17-nation currency area agreed a second rescue package on Thursday with an extra 109 billion euros ($157 billion) of government money, plus a contribution by private sector bondholders estimated to total as much as 50 billion euros by mid-2014. Under the bailout of Greece, which supplements a 110 billion euro rescue plan by the European Union and the International Monetary Fund in May last year, banks and insurers will voluntarily swap their Greek bonds for longer maturities at lower rates. "Fitch considers the nature of private sector involvement... to constitute a restricted default event," said David Riley, Head of Sovereign Ratings at Fitch. "However, the reduction in interest rates and extension of maturities potentially offers Greece a window of opportunity to regain solvency, despite the formidable challenges that it faces," he said.

(Reuters) - President Barack Obama insisted on Friday he was prepared to make "tough choices" for a sweeping deficit-reduction deal to avert a U.S. default, despite being warned by Democrats not to make too many concessions. With the deadline to raise the U.S. debt ceiling now just 11 days away, Obama appealed for compromise by both parties as he and the top Republican in Congress, House of Representatives Speaker John Boehner, pursued a plan for up to $3 trillion in spending cuts over the next 10 years. "I'm willing to sign a plan that includes tough choices I would not normally make, and there are a lot of Democrats and Republicans in Congress who I believe are willing to do the same thing," Obama said at a townhall-style meeting at the University of Maryland. While an agreement did not look imminent, Obama faced increasingly vocal complaints from his own Democrats on a deal-in-the-making that could mean painful curbs in popular health and retirement programs but no immediate increase in taxes. "I've never seen frustration higher," Democratic Senator Dianne Feinstein said.

After hitting 100-19 for the 2nd time today, Fannie 4.0's, once again, bounced higher. This level had marked a sort of boundary between the opening lows and the rest of the trading day. So in that sense, it's important to see that support here. Given the still fairly narrow ranges overall, the slight gains that followed the bounce have carried MBS closer to their highs of the day, currently at 100-23. 10 yr notes as well are near their lowest yields of the day, but neither are looking too serious about breaking out of sideways trend. That said, lenders have been conservative enough in initial rate sheets, that if these gains hold, reprices for the better are not out of the question (though it would take more gains held for longer amounts of time for a majority of lenders to get on board with that.) Caveat though: keep in mind the narrow range today on the heels of recent volatility with the known threat of unexpected headlines. What is currently a better chance of reprices for the better, could soon turn the other direction with only a few ticks of a losing streak.