MBS Stronger This Morning on Euro Zone Concerns

Here's this morning's latest alert from MBS Live:

Greece 2.0? Italy Steps Up To Show The World How It's Done 9:03AM

This morning's bond market rally and stock sell-off is almost exclusively about Italy. Perhaps a small amount of flight-to-safety bid is attributable to some lingering uncertainty as to who will take the reigns in Greece but the big news moving markets overnight centers on the Buono del Tesoro Poliennales, or BTPs which are Italy's government bonds. 

Another enigmatic acronym, the LCH (London Clearing House - effectively the intermediary for a ton of various counterparty trading in Europe) raised margin requirements on Italian debt. Spreads between BTPs and German Bunds (EU's version of US TSYs) were destroyed to the tune of almost 80bps overnight and the entirety of the financial world is once again humming similar tunes to those heard before Greece really started to hit the skids. It's an eerily similar situation really, and one that is partly already priced into current strength in TSYs (we say again and again that DOMESTIC economic turmoil is enough to get 10yr yields to 2.3% giver or take, but the EU turmoil is what takes us lower. Just a hypothesis on our end, but there's some compelling evidence). 

At any rate, levels in US bond markets are rather sharply improved this morning despite the looming 10yr note auction:

Fannie 3.5's are up 3/8ths at 102-05
10yr yields are 11 bps lower at 1.97
S&P Futures are down a not-insignificant 30 pts
and the Euro fell to its lowest levels in a month, erasing all of November's gains in one night.

This should have a salubrious effect on rate sheets this morning, but do expect some level of inconsistency as different lenders may have different considerations during this month's MBS settlement process, taking place from yesterday through tomorrow. Ideally, we'd like to see 102-02 hold up as support (leaving 101-26 intact after the roll), but the day is young, and as one blind man said to the other, we'll see what we'll see.

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Here's a look at this morning's 3.5 chart with the 102-02 and 101-26 levels highlighted as well as potential resistance at 102-06:

Here's the Dashboard in action with a pivot point at 2% and a resistance target of 1.95

1.95 has been pretty good for a mid-day bounce recently whereas the broader resistance has been at the 1.98 fibonacci line in the following chart:

We continue to like keeping an eye on stocks as the stock lever continues to be pertinent:

But ruling the broader roost overall is the Euro.  Here's how November has shaken out so far as the Euro erased all of it's gains from the month, paving the way for the killer domestic bond market rally:

(euro in green, stocks in blue, 10yr notes in red)