MBS MID-DAY: Second Thoughts About Breaking The Range

Domestic bond markets have taken part in a choppy, volatile, but reasonably strong move away from risk every day so far in July.  That means rates have been falling.  Moving "away from risk" speaks to the fact that stock prices and commodities have also been falling.  Prices have also been falling in riskier bonds (like Greece's, for example), meaning investors have demanded ever-higher yields in order to hold Greek debt.  Perhaps just as notable has been the recent drop in Asian equities prices.

But both bounced higher today, and it's quickly given pause to the safe-haven rally in markets like US Treasuries and MBS.  The fact that markets are tuned in to the Greek debt negotiation process is undeniable.  The last time Greek yields ebbed in any noticeable way was on July 1st and 2nd, which lined up perfectly with the last move higher in US interest rates. 

There is still much to come with respect to a "deal" for Greece.  We may get a few meaningful headlines over the next 48 hours, but the biggest news is expected over the weekend.  At stake for US interest rates is the risk of failing at yesterday's attempt to break June's range boundary.  That's the teal line in the chart below.  MBS, for their part, are faring a bit better than Treasuries into today's selling, but only because they've fared noticeably worse during the rally.