MBS MID-DAY: Bonds Defending Against Weekend Headline Potential (by selling off...)

By: Matthew Graham

The trend continues to be unfriendly this morning.  Markets are defending against the possibility that the weekend brings a Greek debt deal.  Headlines have generally been feeding that speculation.  This is indeed a day where Greece-related news is having an impact, but again, it's good to keep the big picture in mind. 

In other words, core global bond markets are bouncing for reasons that transcend Greece.  In fact they were still falling significantly in yield when Greek yields were already well on their way higher.  The fact that markets make so much of a connection between Greek events and core bond yields now is a testament to our desire to assign meaning and blame.  But yes... you can blame the Greece situation for SOME of today's weakness and some of the recent weakness, but to reiterate a frequent point: it's a supporting actor in a much larger drama.

Back to the here and now...  At this point, bond market losses are consolidating in that classic "bear flag" sort of way.  That means that we've had a big move in one direction followed by a narrow-range consolidation near the boundary of that move.  It looks like this:

Such moves are ominous, in general.  But they're by no means guaranteed to result in follow-through selling.  They're ominous because they keep the possibility of further selling alive.  If there's a silver lining or saving grace here it's that 10yr yields look like they're fighting for support at 2.47, which is one of the most important historical inflection points. 

So there's at least a chance that we're trying to bounce here.  But there's a catch.  If yields happen to break higher, there's a legitimate risk of snowball selling as traders' stop loss levels get taken out.  In other words, any trader with an open long position (bet on rates moving lower), is at risk of getting "stopped out" (forced to sell to avoid further losses) if we move higher.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.0
98-22 : -0-13
FNMA 3.5
102-10 : -0-11
FNMA 4.0
105-14 : -0-08
Treasuries
2 YR
0.7120 : +0.0240
10 YR
2.4640 : +0.0520
30 YR
3.2210 : +0.0440
Pricing as of 6/26/15 11:13AMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:19AM  :  ALERT ISSUED: Negative Reprice Risk Already a Consideration for Some Lenders

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS - EU'S JUNCKER SAYS THIS IS NOT A TAKE IT OR LEAVE IT SITUATION ON GREECE"
Matthew Graham  :  "RTRS- EU'S JUNCKER SAYS PROGRESS HAS BEEN MADE ON GREECE, THERE IS A REAL POSSIBILITY OF CONCLUDING AN AGREEMENT IF ALL PARTIES AGREE"
Matthew Graham  :  "all the nitty gritty detail-type stuff that began to come out in the days leading up to the last bailout agreement"
Matthew Graham  :  "RTRS - GREECE IS OFFERING TO BOOST STATE INCOME VIA 30 PCT TAX ON GAMING, SALE OF 4G AND 5G MOBILE TELEPHONY LICENCES -GREEK DOCUMENT"
Matthew Graham  :  "RTRS- GREECE WANTS TO HAVE VAT ON HOTELS AT 13 PCT RATHER THAN 23 PCT AS ASKED BY CREDITORS, KEEP 30 PCT DISCOUNT ON ISLANDS WHILE CREDITORS WANT NO DISCOUNT-GREEK DOCUMENT"
Matthew Graham  :  "some examples: RTRS - GREECE IS OFFERING TO INTRODUCE A ONE-OFF CORPORATE TAX OF 12 PERCENT ON PROFITS OVER 500,000 EUROS TO MEET FISCAL TARGET FOR 2015-DOCUMENT"
Matthew Graham  :  "lots of these wires are about taxation"
Matt Hodges  :  "my thought is Greece will somehow exempt citizens from that increase and only have tourists pay"
John Tassios  :  "raising various taxes in a country of 30% UE and neg GDP is really going to help their economy recover. I'm sure tourists will love the increased VAT tax and may actually increase tourism"
Matthew Graham  :  "the kinds of details that they only dig into when they're close, based on past precedent."
Matthew Graham  :  "none of them are going to make any sense... all details on Greece's counter-offer"
Matthew Graham  :  "wow, there are a lot of headlines here"
Matthew Graham  :  "RTRS - GREEK PROPOSAL OFFERS 0.93 PCT/GDP REVENUE RISE FROM VAT REFORM INSTEAD OF 1.0 PCT REQUESTED BY CREDITORS - GREEK PROPOSAL"
Matthew Graham  :  "RTRS- BRUSSELS-GREEK PM SAYS GREEK GOVT WILL CONTINUE FIGHT ON EU PRINCIPLES"
Matthew Graham  :  "RTRS- BRUSSELS-GREEK PM SAYS EUROPEAN UNION PRINCIPLES DO NOT INCLUDE BLACKMAIL"
Matthew Graham  :  "RTRS- GERMANY'S MERKEL SAYS NO PLANS FOR EURO ZONE LEADERS SUMMIT FOLLOWING SATURDAY EUROGROUP"
Matthew Graham  :  "RTRS - GERMANY'S MERKEL SAYS WE HAVE MADE CONCESSIONS TO GREECE"
Matthew Graham  :  "RTRS- GERMANY'S MERKEL SAYS SHE AND HOLLANDE URGED TSIPRAS TO ACCEPT "GENEROUS OFFER" FROM INSTITUTIONS"