MBS Day Ahead: It's a Great Time to Talk About Last October's Flash Crash and Greece

Hindsight is 20/20, but only for those with both eyes open.  Unfortunately and comically, Treasury, The SEC, The Fed, and The CFTC still aren't looking at the big picture when it comes to October 15, 2014.  They've been talking about it for a while, and just released this report yesterday.  BY ALL MEANS, open the report, hit CTRL+F and type in the word Greece.  Does anything come up?  No...

Should it? 

Very likely...

As for a few of the news headlines coming out of Greece at the time, everything was kicked off over the preceding weekend.  Here's a good recap of that.  Then, according to MNI, a confidential document was leaked showing that Greece's creditors preferred a "dirty exit" from its bailout agreement. 

While the officials who worked on the Treasury report may well have some work to do when it comes to explaining some of the finer points in the pace of October 15th's selling, for the word Greece to not appear once in 76 pages dedicated to explaining mid-October bond market volatility seems completely insane given the preceding charts and the nature of our current volatility.  Not everyone made the connection at the time, but in hindsight, it should be clear.

So is bond market movement all about Greece?  Not even remotely!  While it is definitely true that Greece does a really good job of influencing bigger bond markets on a small scale, it's no match for big-picture momentum.  Even in late 2011 and early 2012 when Greece dominated the news, Eurozone CPI was quietly decelerating, paving the way for 3 years of declines that only really bounced in early 2015.

More recent fluctuations have certainly had an effect, but bond markets in US and Germany began selling off in early 2015 even while the Greek situation continued to deteriorate.  Whether we look at Greek bond yields or stock indices, it's easy to defeat the logic that Greece is the driving force in US bond markets and impossible to say it doesn't matter.  Clearly it matters, and clearly it's one of many things in that regard.

So what else matters?  Perhaps today's Retail Sales?  Probably not, but it is nostalgic to think about Greece and Retail Sales  considering the report was also present on that fateful day in October 2015.  Incidentally, the Treasury report mentions Retail Sales 28 times to Greece's zero.  The ratio is a bit off to say the least.  Let's leave it at this: both are capable of short term momentum and neither will change the bigger picture in and of themselves.