MBS RECAP: Good Day for Greece and China; Bad Day for US Rates

The easiest promise to make for 2015 has been that of volatility.  It's not the worst we've ever seen, but it continues at a healthy pace in terms of the size of day to day changes.  Where yesterday saw rates down big, today brought them up, bigger. 

Motivation continued to come from overseas with China and Greece being the key players at the moment.  The overnight session began poorly for Treasuries as Chinese stocks put in their first big bounce back since the faster-paced selling began.  No surprise there.  As we've discussed, the surprise would have been if the selling continued.

Greece may have been slightly more surprising today, depending on your point of view.  The surprise is that the timeline of events laid out after last weekend's referendum is proceeding according to schedule.  That means that Greece has delivered the agreed-upon proposal to its Eurozone creditors and is set to ratify the proposal in Greek parliament tomorrow. 

Of course the delivery of the proposal doesn't mean anything will happen.  And in fact, the details are already raising some questions among those who know about such things.  Still, the simple fact that 4 days have passed without any new delays or major changes in the gameplan is nothing short of astonishing in this saga.  It could indeed signal that the tone of the negotiations has changed in a more sober direction, but ultimately, the earliest we could know would be this weekend.

After Europe and China pushed bond markets into weaker territory, domestic events joined in the 'fun.'  Corporate bond issuance was big today, due to one large deal from Charter.  This creates additional supply pressure in a bond market that's already facing supply in the form of the afternoon's 30yr bond auction.  The charter deal didn't price until the afternoon, meaning that traders were eager to sell newly-acquired 30's after the auction in order to get in on the juicy yields being offered in the charter deal.  As such, yields continued to drift higher in the afternoon.