MBS MID-DAY: Bond Markets Treading Water Ahead of Fed

What a quiet day it's been so far!  Today's noncommittal sideways grind is the polar opposite of yesterday's steam-roller.  This wasn't necessarily destined to be the case based on overnight action though. 

The 6am hour was particularly worrisome as overnight Treasury yields rose to their highest levels since Jan 1 after wires hit regarding Greek loan extension efforts.  There wasn't much meat to that story other than to suggest EU Commission President Juncker is working with Eurogroup on an extension of Greece's existing program.  The fact that such an extension is still predicated on Greece adhering to reform commitments means these headlines really don't mean much. 

Add to that the fact that Juncker is the guy who famously quipped "when things get serious, you have to lie."  While we know in hindsight that the quote was taken out of context to some extent, we also know that Juncker places value in managing the public/market perception of high stakes events.  So, when they come from this source, we take any ostensibly positive headlines on the Greek situation with a grain of salt. 

Markets did too and found their footing just over an hour later.  Considering the fact that yesterday's move was driven in large part by tradeflow momentum, and 'forced' selling with leveraged money, it didn't take much by way of 'non-forced' buying with real money to scare short sellers into covering.  And so it happened that 10yr yields rocketed fairly quickly from 2.16 to 2.11, but THAT'S IT!

2.112, to be exact, has proven to be a stubborn old goat of a resistance level (in terms of stubbornness, goats are on par with recalcitrant mules, but the word itself makes for a more alliterative turn of phrase).  It would have been nice to see a willingness to break below it before the 2pm FOMC Minutes, but so far, no dice.  MBS and 10's are both treading water, bouncing sideways just inside yesterday's weakest levels.