MBS Day Ahead: Parent Teacher Conference with Yellen; Greece Turns in Homework


The Fed Chair’s semi-annual congressional testimonies are always a hoot.  That’s where we get to see a delightful mix of politicians read what some might describe as ‘questions’ for Janet Yellen. 

Poor Janet…  So few of these politicians end up asking relevant questions.  Some are well-meaning, but bespeak a tremendous ignorance of the economy, financial system, and/or the Fed’s role therein.  Others are downright shameful–blatant political posturing with almost no regard for logic, propriety, courtesy, civic duty, and in rare cases, personal hygiene.

OK, I can’t confirm the last one, but you get the idea.  It’s awful.  Watch it live if you don’t believe me. 

I can assure you there will be a real-time play-by-play assessment on MBS Live (in addition to the live feed itself), and I don’t remember the last time that several MBS Live members didn’t chime in in disbelief of what some Senator or Politician just asked Yellen.

Yet despite the fact that these events unavoidably devastate any remaining confidence one might have in the US political system, there still manages to be important information that comes out of the testimonies.  This is the same sort of useful information you might encounter if a prominent astrophysicist was tasked with educating preschoolers on why stars are twinkly.  In other words, just because the interrogators aren’t on the same level with the person in the hot seat, and just because the explanations are necessarily dumbed way down, doesn’t mean the person answering the questions won’t touch on relevant knowledge in the process.

So there’s that.  And then there’s Greece.  They’ll very likely get ‘something‘ back to the Eurogroup today by way of their list of reforms required to prolong their bailout program.  This could happen at any time, and perhaps even before you read this.  Markets will operate under the assumption that Greece delayed yesterday’s attempt because they were told it wouldn’t pass muster and therefore any submission today suggests it will be approved by the Eurogroup and German Parliament.  As such, it’s likely a net-negative for bond markets when/if Greece turns in their homework, except on the off chance that it’s met with some visible immediate rejection from a prominent Eurogroup peer.

In terms of trading levels, both European and US bond markets are sideways in the intermediate term and waiting for the next big move.  Germany (benchmark for European bond market) has support overhead that needs to hold if US bond markets are to have a better chance at breaking below their key technicals marked by 2.05 in the following chart.

2015-2-23 bunds and treasuries

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