MBS Week Ahead: The Annoying Sideways Grind in Bond Markets Will Continue Until...

The annoying sideways grind in bond markets will continue until we see whether or not Greece ends up leaving the EU.  The EU doesn't want that and neither does Greece.  Even roughly a quarter of the Greek people would prefer to remain in the EU according to polls.  But Greek leaders are as yet determined not to 'extend the bailout' (even though they are perfectly willing to commit to a "bridging loan," which EU officials point out is mostly different than a bailout extension insofar as its name).

Even so, talks broke down on Monday and given the concluding thoughts offered by the Eurogroup, those talks didn't matter much in hindsight.  Reason being: Monday wasn't a deadline by any means.  The Eurogroup explicitly stated Greece has until Friday to reconsider.  Even then, the current program expires at the end of the month, so it wouldn't be a surprise to see Friday end up having less than an epic amount of significance if there's still no deal.

Either way, Europe's core bond markets--as exemplified by Germany in the chart below--haven't done anything with the recent drama when it comes to a bigger picture continuation or reversal in the long-term rally.  Treasuries were meanwhile forced to cope with an adjustment to their relationship with European debt after the extra strong employment data earlier this month, among other things.

That white oval is really what it's all about.  Even though Treasuries have gapped out recently, the broader tone for risk-free fixed-income trading is most likely to take its  cue from the next major shift in European bond markets, just as it did for all of 2014.

That leaves this week's events in a somewhat dubious light as far as motivating any bigger-picture trends.  If domestic data is going to manage to have much input, it is limited to Wednesday and Thursday as all the upper-tier economic events occur on those two days.  The highlight is FOMC Minutes at 2pm on Wednesday.