MBS RECAP: Bond Markets Rally on Greece Vote

MBS and Treasuries improved at a healthy clip today, and almost exclusively due to the referendum in Greece over the weekend.  The opening yields in overnight Treasury trading were the lowest of the day.  This was followed by steady weakness until 11am and ultimately a nice rally back toward the previous lows to end the day.  MBS did a somewhat acceptable job keeping pace with the flight-to-safety rally, and that's about as much as we can hope for on days like these.

Given the original hype surrounding the Greek referendum (specifically, that it was a vote on remaining in the Eurozone), the fact that German yields didn't break last week's lows is cause for some concern.  After all, if Bund yields won't go any lower than they've already gone despite Greece voting to reject EU-imposed austerity--potentially setting the stage for Greece exiting the Eurozone--what's it gonna take?! 

Not only that, but peripheral European countries are just not as spooked this time around.  To be fair, if we zoomed the following chart in enough, we would indeed see that peripheral states "care" about the Greek situation.  Spreads are elevate relative to early 2014 levels.  The point is that they don't care nearly as much as they did in 2011-2012 when Eurozone systemic risk was in its prime. 

There is still a risk that the systemic nightmare comes true (where Greece causes a domino effect that ultimately unravels the Eurozone), but it's not at the top of many lists, unless those are lists of events that are technically possible but highly unlikely.  Still, that technical possibility is worth some caution on the part of global financial markets, and today we saw that caution is worth about 3/8ths of a point in fee on rate sheets.