MBS MID-DAY: Bonds Reinvigorated by European Rally

Some magical combination of new QE tradeflows and Greek drama (surprisingly enough) has driven German Bund yields well into new all-time lows today.  In one school of thought, this is exactly what we've been waiting for in terms of domestic bond markets as it finally marks a decisive move out of the narrow range established in February.

In other words, a potential long-term bounce in European bond yields is/was one of the things potentially causing anxiety for US bond markets recently.  Today's rally eliminates that big bounce potential, or at least resets the clock on "days spent without making a new low."  (The more those days rack up, the more anxiety can build.)  As such, US 10yr yields have continued backing down from their run at recent highs, and MBS have similarly retraced a majority of last week's losses.

There are two key factors behind the European move.  Most obvious is the fact that new QE purchases have been going better than markets anticipated, with the ECB readily buying even the bonds with negative yields (assuming they aren't under -0.2).  The other factor is a flare-up in Greek drama, with the Finance Minister saying Germany should have known Greece would never pay back its debt, and the Defense Minister threatening Western Europe with immigration and 'jihadists.'