The Day Ahead: Economic Data and Treasury Auctions vs. European Headlines

Monday saw MBS and Treasuries both end up at levels very close to Friday's close.  In and of itself, that suggests the day was uneventful and sideways.  In fact, that's sort of true, but only from 11am on.  Up until then, bond markets were stampeding to make it back to those unchanged levels from a significantly weaker open.  

The Cyprus bailout agreement was behind the weakness, but as EU finance ministers bungled their lines and Italy stalked the shadows, everything came roaring back in unison.  This was good for bond markets and bad for Euros and equities.  The following chart shows how the day unfolded for US Treasuries (yellow), German Bunds (green), EUR/USD (teal), S&P futures (blue), and the white line shows Italian 10yr spreads vs German 10's (the lower the white line, the wider the spread and the more risky the perception of the Italian outlook).  note that 13:01 on that chart is 5:01pm in Europe.  Falling falling falling, and after the close, who cares!?

As far as the market events contributing to that potential movement, today contains economic data in relative abundance compared to yesterday's session.  Durable Goods orders are in the 8:30am time slot, followed by Case Shiller Home Prices at 9am.  Then at 10am, New Home Sales and Consumer Confidence arrive simultaneously while the afternoon contains an unimportant 2yr Treasury Note auction.  Recent behavior suggests that the data would have to fall quite far from consensus estimates in order to have a major impact with markets still sensitive to all things European.

At the very least, we can say it will be interesting to see if we get any movement from domestic data, especially if there are relevant EU-related considerations.  On that note, we'd expect Italy to start picking up where Cyprus is (probably?) leaving off.  Unlike Cyprus, Italy can't simply "hash it out" with the EU and must actually figure out a way to govern themselves.