MBS RECAP: Bonds Brought Back to Positive Territory by Oil and Greek Drama

Unlike yesterday, which had a decent start and crappy conclusion, today's trading session began with bond markets at their weakest levels in more than 2 weeks, but ended with a strong move back into positive territory.  Better yet, the motivation for the latest, strongest move is centered in the Eurozone, which hasn't even had a chance to react.  In other words, most of the positivity at the moment stems from domestic traders anticipating the Eurozone reaction.  In these cases, domestic traders tend to undershoot.

Bond markets hinted at their willingness to bounce back as they visibly opted to hold technical support during the first half of the day.  While MBS and Treasuries were both in negative territory, 10's respected the 1.84% inflection point and Fannie 3.0s held above 102-20. 

Ironically, European markets were part of the reason for the weakness overnight.  As soon as they closed, domestic Bond markets started to perk up a bit.  A massive slide in oil prices provided a bit of a nudge, but the biggest development was the aforementioned Greek Drama. 

Long story short, the ECB cut off Greece's funding lines effective 2/11, citing the uncertainty surrounding Greece's austerity program.  Market participants figured the D-day would be 2/28, so it's a forceful message to Greece to make a decision on exiting the Eurozone or playing ball with austerity.  Depending on whatever headlines come out of Greece overnight, tomorrow's reaction could be huge in either direction.