The Week Ahead: Markets Digest Spain Bailout, Treasury Auctions, Econ Data, And More

By: Matthew Graham

Bond markets are off to a significantly weaker start in Asian trading hours after Eurozone officials held a scheduled conference call on Saturday to discuss bailout options for the Spanish banking system.  After the call, finance ministers announced that Spain will indeed make a formal request and that between the EFSF and the ESM, Spain would receive up to €100 bln after an independent audit pins down a more concrete figure by June 21st.  (read more...)

So just to be clear, 10yr yields have kicked off the week's trading nearly 10bps higher (currently in the 1.71's) after an event over the weekend produced largely "as-expected" results.  Furthermore, the announcement only stated that Spain WILL make a request and that the Eurogroup is "willing to respond favorably to such a request," but that the final amount hasn't been determined and the formal request won't occur until later in the month.  That's a lot of market movement for what is essentially a "back-patting get-together" that produced the concrete result of "good intentions."  

Whatever roads actually end up being paved by the events this weekend, critics maintain that it still leads to economic hell for the Eurozone.  This is not necessarily because spain itself is destined to drag down the entire Euro-zone, but more so because of the upcoming elections in Greece that predate the scheduled audit completion for finalizing Spain's bailout.  If the anti-bailout radical left wins on June 17th, it's not only bad for the Greek default outlook, but it likely causes the current "jog on the banks" in Spain to turn into a full-blown run.  (read more...)

Although 10yr yields are trading up into the 1.7's at this early hour, we have yet to see how domestic markets will trade the weekend data.  It's not uncommon for trading levels during the Asian hours to be significantly weaker for bond markets only for domestic investors to reign things back in.  Even then, the current level of weakness could persist, and MBS would likely continue to be "less bad" than Treasuries if the overall long-term range boundary of 1.80 remains intact.

Helping to determine the rest of the week's trading range, we have the longer maturity auction cycle up with 10's on Wednesday and 30's on Thursday.  The more noticeable hustle and bustle of the week really begins on Wednesday in terms of data with several major releases each morning through Friday.  The first two days of the week are slower by comparison with today, especially, standing out as a data-free day in terms of economic releases, leaving markets to figure out how they really feel about the weekend's conference call.  

MBS Live Econ Calendar:

Week Of Mon, Jun 11 2012 - Fri, Jun 15 2012

Time

Event

Period

Unit

Forecast

Prior

Actual

Tue, Jun 12

08:30

Export prices mm

May

%

-0.1

-0.5

--

08:30

Import prices mm

May

%

-1.1

-0.5

--

13:00

3-Yr Note Auction

--

--

--

--

--

14:00

Federal budget, $

May

bl

-122.5

+59.12

--

Wed, Jun 13

07:00

Mortgage market index

w/e

--

--

804.8

--

07:00

Mortgage refinance index

w/e

--

--

4476.2

--

08:30

Producer prices mm

May

%

-0.6

-0.2

--

08:30

Producer prices, core mm

May

%

+0.2

+0.2

--

08:30

Producer prices, core yy

May

%

+2.8

+2.7

--

08:30

Retail sales mm

May

%

-0.2

0.1

--

08:30

Retail sales ex-autos mm

May

%

0.0

0.1

--

08:30

PPI inflation yy, NSA

May

%

1.1

1.9

--

10:00

Business inventories mm

Apr

%

+0.3

+0.3

--

13:00

10-yr Note Auction

--

--

--

--

--

Thu, Jun 14

08:30

Core CPI mm,

May

%

+0.2

+0.2

--

08:30

CPI yy,

May

%

+2.2

+2.3

--

08:30

Consumer Prices mm

May

%

-0.2

0.0

--

08:30

Consumer Prices yy

May

%

+1.8

+2.3

--

08:30

Initial Jobless Claims

w/e

k

375

377

--

08:30

Continued jobless claims

w/e

ml

3.27

3.293

--

08:30

Current Account

Q1

$bln

-132.1

-124.11

--

13:00

30-Yr Bond Auction

--

--

--

--

--

Fri, Jun 15

08:30

NY Fed manufacturing

Jun

--

14.0

17.09

--

09:00

Foreign buying, T-bonds

Apr

bl

--

20.47

--

09:00

Overall net capital flows

Apr

bl

--

36.2

--

09:15

Capacity utilization mm

May

%

79.2

79.2

--

09:15

Industrial output mm

May

%

+0.1

+1.1

--

09:55

U.Mich sentiment

Jun

--

77.5

79.3

--

09:55

U Mich conditions

Jun

--

85.3

87.2

--

09:55

U.Mich expectation

Jun

--

71.8

74.3

--

* mm: monthly | yy: annual | qq: quarterly | "w/e" in "period" column indicates a weekly report

* Q1: First Quarter | Adv: Advance Release | Pre: Preliminary Release | Fin: Final Release

* (n)SA: (non) Seasonally Adjusted

* PMI: "Purchasing Managers Index"