The Day Ahead: Standard-Issue Europe-Driven Risk-Off Trading Meets Domestic Data

More of the same from the EU overnight.  Here's the morning alert from MBS Live.

Tediously Familiar Risk-Off Trade Benefit Treasuries Overnight 8:17AM

Although the "benefit" is wearing off as the domestic session gets underway, the "tediously familiar" part of this morning's headline remains in full effect as last night constituted a strikingly cliche example of risk-off trading. 

The usual suspects are in play and indeed, there seems to be two varieties of "mad libs" available to recap overnight action, Today's is the one that reads " ____________ (major newspaper) cites renewed concerns over Europe's _________ (choose component of EU economy, while __________ (EU Country) had a very ___________ (choose negative descriptor) auction." In this case, it was WSJ, bank funding costs, Spain, and horrid... (hmm,,, maybe we could do this as a game of Clue as well, but Mad Libs do seem more fitting. 

Either way, the WSJ article made rounds. The Spanish auction drew a mere 1.45 bid-to-cover and the yield was much higher than expected. Italian yields continue to hover near 7%. Stocks sold and bonds rallied. While 10yr yields are about a bp better, MBS start the day roughly flat versus yesterday, currently 1 tick down at 101-23. 

Morning data includes Jobless Claims, Philly Fed, and Housing Starts, beginning with the first two in about 15 minutes.

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Here's a quick look at the MBS Coupon Stack and Treasuries a few minutes before the econ data hits: