MBS Day Ahead: Another Quiet Calendar Day Leaves Door Open for Volatility

It's a tricky, deceptive, and interesting time to be watching or trading financial markets, let alone merely discussing them with friends, colleagues, and clients.  The absence of universally-agreed-upon worldviews means that everyone is suddenly an expert on things that haven't been around long enough for anyone to be an expert on.

At times like this, it's important to take a step back and focus on what we actually know as opposed to what we can imagine (or what others have imagined and presented in a compelling enough way for our own imaginations to run wild).  To hear some pundits say it, Greece will bring about the end of the world any moment now.  What makes this situation so interesting is that there's no way to prove them wrong!

Still, we should take it with a grain of salt, considering we've lived through scarier world-ending prophesies, centered on Greek drama several times now.  As of now, this still isn't on the same scale as those past examples.  From 18 percent currently in Greek 10yr yields, it's a big leap to the 30, 37, and 41 percent milestones seen in 2011-2012.  Furthering the case against rekindling that old panic, the rest of the Eurozone isn't as fazed (yet!  remember, critics argue it's only a matter of time).

But again, let's focus on what we can KNOW today.  One of the things I find most interesting about the "rates are low because: GREECE!" thesis is that rates have mostly been doing the opposite of Greece's suggestion recently.  It's only in the very short time scales that we see Treasury yields moving lower when Greek yields are moving higher.  Granted, Greece-related concerns have fueled plenty of mini-rallies in safer rates markets.  But safer rates markets are also still in an uptrend despite the conventional wisdom on Greek contagion suggesting they should be in a downtrend.  The following chart highlights the last major lows in German Bunds and US Treasuries, and then compares those to yesterday's closing levels along with Greek yields at the same times.  Red circles are Greek yields, White=Treasuries, Green=Germany.

So there it is... something you can actually see with your own eyes.  You don't even have to be able to answer the "what gives?" question.  All you need is to plunk this chart down in front of the next person that says rates are low due to Greece and ask them why most of 2015 has seen rates rise across the board.  Maybe there are other market movers besides Greece?  Heck!  If Treasuries are moving generally higher with Greek yields, then the other market movers must actually be more important or more numerous than Greece!