The Day Ahead: Digesting Greek Bailout With Auction Supply and Limited Data

Bond markets are slightly weaker from Friday's latest levels as the Greek bailout that has been the markets focal point for several weeks, was technically approved early this morning in Europe (yesterday evening in terms of EDT).  The initial announcement hit just before 7pm last night and there was a predictable jolt of volume and move higher in yields for bond markets.  Slightly surprising however, was just how limited the weakness was.  We could have easily imagined that 10 yr yields, for instance, might see fit to revisit some of their recent highs, but they never broke 2.05, while yields were several bps higher on 2/9, and slightly higher still in late January.

Here's a good overview of the bailout details from Reuters:

(Reuters) - Euro zone finance ministers sealed a 130-billion-euro ($172 billion) bailout for Greece Tuesday to avert a chaotic default in March after persuading private bondholders to take greater losses and Athens to commit to deep cuts.

After 13 hours of talks, ministers finalized measures to cut Greece's debt to 120.5 percent of gross domestic product by 2020, a fraction above the target, to secure its second rescue in less than two years and meet a bond repayment next month.

By agreeing that the European Central Bank would distribute its profits from bond buying and private bondholders would take more losses, the ministers reduced the debt to a point that should secure funding from the International Monetary Fund and help shore up the 17-country currency bloc.

But the austerity measures wrought from Greece are widely unpopular among the population and may hold difficulties for a country which is due to hold an election in April. Further protests could test politicians' commitment to cuts to wages, pensions and jobs.

(read the FULL STORY)

So far this morning, 10yr yields are remaining under the 2.05 highs from the overnight session, though still operating in slightly weaker territory.  MBS are weaker as well, down several ticks from Friday's latest prices around 103-09 to 103-05 currently.  There's no significant economic data to inform trading levels this morning, and that continues to be the theme throughout the week with an extremely light calendar of scheduled econ.  The week does bring a fresh round of Treasury auction supply, and owing to yesterday's holiday, that begins with today's 2yr Note Auction at 1pm.  While 2yr notes are not likely to inspire movement in production MBS, tomorrow's 5yr auction has a much better chance.  The pervasive market mover will be watching the ongoing reaction to the details of the Greek bailout.