MBS Day Ahead: Very Busy Day, Focused on Yellen and Greece

Both in terms of scheduled data on the calendar and unscheduled headline potential from Greece, today is action-packed.  The domestic economic data isn't necessarily top shelf, but a few of the reports have moved markets moderately at times.  Chief among these for today are Industrial Production at 9:15am, and to a lesser extent, PPI at 830am. 

(For what it's worth, PPI used to be much more of a market mover.  The inflation inflation bogeyman hasn't been seen with dentures--let alone teeth--for years now, and it will take more than one PPI for people to start telling scary stories again.)

Yellen begins her 2-day congressional testimony at 10am today.  These Humphrey Hawkins speeches have market-moving clout tantamount to Fed Policy Announcements depending on what's said.  Case in point when Bernanke spilled more beans on tapering in May 2013.  To be clear though, we're talking about potential, not probability.  We know a lot more about how Yellen is feeling these days, and the likelihood that she lets unexpected policy cats out of the bag is low.  If she does, expect chaos.

Some measure of chaos can be expected if any of today's Greece-related headlines find their mark.  Here too, we shouldn't assume that a drastic reaction is guaranteed.  But for instance, if Greece is unable to pass the reform package through parliament, we might well expect the same sort of "GREXIT!" trade that we saw last week after the "no" vote on the referendum. 

This bears repeating for several reasons--not the least of which being that the chart above correlates bond market movements with Greece-related events/news.  Greece definitely affects day to day movement in bond markets, but it is not responsible for where we are in the bigger picture.