MBS MID-DAY: 2/7/2012

10yr benchmarks are on the verge of a fairly meaningful technical breakout, at least as far as the yields themselves are concerned. Volume, on the other hand, while much higher than yesterday is not high enough to do justice to the very important horizontal pivot point in the high 1.95's.

Even so, MBS haven't much enjoyed the mere fact that benchmarks are close to such a shift. Fannie 3.5's dropped to their lows of the day moments ago (103-20), but have since bounced back up to 103-22. We'd start to watch out for the early reprice crowd unless the bounce back continues to take prices higher. Conversely, if prices start falling again, assume reprice risks increasing in a fairly linear fashion with each tick lower from current levels, turning from "possible" to "likely" around 103-18.

The excerpt and link below are from today's JOLTS survey released each month by the Bureau of Labor Statistics. The data speaks to December, but historically sheds light on the broader trends in private payrolls. In the current case, it's plain to see that private payrolls are generally improving according to the Employment Situation Reports, and today's JOLTS survey is basically just another piece of data in agreement with that trend. Not a major market mover, but something to add a small bit of detail to the big picture.

"There were 3.4 million job openings on the last business day of December, up from 3.1 million in November, the U.S. Bureau of Labor Statistics reported today. The hires rate (3.1 percent) and separations rate (3.0 percent) were unchanged over the month. The job openings rate has trended upward since the end of the recession in June 2009. (Recession dates are determined by the National Bureau of Economic Research.) This release includes estimates of the number and rate of job openings, hires, and separations for the nonfarm sector by industry and by geographic region."

Greece's government is preparing the text of an agreement on a 130 billion euro bailout that must be put to political leaders for approval, a Greek government official said, suggesting Athens had largely wrapped up talks with lenders on the rescue.

The political leaders are due to discuss that agreement late on Tuesday.

"The Greek government is working on the final document that will be discussed at the political leaders' meeting later in the day," a government official, who declined to be named, told reporters.

Prime Minister Lucas Papademos negotiated through most of the night with Greece's European Union and IMF lenders, ending at 4 am (2 am London time) when the 24-hour strike was about to begin, closing ports and tourist sites and disrupting public transport.

Treasuries weakened significantly into the domestic session this morning on news that the Greek government is drafting an agreement on the bailout deal to be voted on later today. 10yr yields rose another 3bps in short order reaching 1.9434, which is getting into the thick of a band of yields that comprise a long-standing pivot point. MBS have been less damaged by comparison with Fannie 3.5's only down 2 ticks on the day at 103-25.

Keep in mind that market participants are getting about as tired of unmet deadlines and changes of plan as we all are. Thus, we would expect a more significant reaction to something actually happening as opposed to what we have now, which is merely an announcement that a proposal is being drafted. Volume has quickly surged to its two day highs and there's a risk that this could be identified as something of a turning point in the momentum that had been fighting against Friday's jobs-data-inspired losses.

Bottom line, this is that "unscheduled market mover" for which we were waiting, but the risk is that there are more to come if Greece manages to actually get this done today. Pricing in that possibility in conjunction with setting up for tomorrow's 10yr auction could quickly take the long end of the yield curve on an unpleasant ride as far as MBS are concerned. Even as this alert is typed, they're down another tick to 103-24 as 10yr yields push over 1.95.