Day Ahead: 10yr Auction And Another Probable Greek Deadline Miss

The theme of light economic data continues on Wednesday with MBA Mortgage Apps being the only item of note.  Even then, it's only notable due to it's pertinence to our industry and is not a market mover.  Both the refi and purchase indexes snapped 3 week losing streaks with the Purchase Index just barely improving.  The Refi Index on the other hand, rose a hefty 9.4% from 4113 to 4500 as the MBA reported average rates dropped from 4.09 to 4.05. 

The other part of the weekly theme is that the light economic data is punctuated by scheduled and unscheduled market movers.  On the scheduled front, the most promising contender is the 1pm Auction of $24 billion of new 10yr Notes.  Refundings over the past year have generally met with lighter demand than reopenings with the last 4  averaging 3.02 as opposed to reopenings, which have averaged 3.21 over the same time.  In other words, we wouldn't be hung up about a lighter bid-to-cover tomorrow.  That said, it does seem like it would be worth something from a psychological standpoint to have it come in over 3.0. 

Although we don't think that most market participants are discounting the auctions because they necessarily expect some rousing success of a Greek bailout negotiation tomorrow, the simple fact that SOMETHING will happen, and that we don't yet know exactly what that will be, could cause some hesitation/reservation.  More simply put, the risk is the absence of strength as opposed to the presence of weakness.  Additionally, new information may have come to light by the time the auction goes off, so it's really anyone's game.  We wouldn't be any more surprised to see 2.09 than we would 1.88 after all is said and done.