Trading so far this morning is doing its best to appease two considerations. On the one hand, there’s the fact that “something” happened with respect to the Greek bailout vote. On the other hand, “something” has happened with respect to Greek bailout votes in the past, yet we ended up back in the same can-kicking position. Markets are indeed skeptical about any sort of “solution” that comes from EU bailouts/negotiations/summits/meetings and now, conference calls! That much is evident in the support seen around 2.04 in 10yr yields.
But the sideways grind is accompanied by heavy volume today, which brings us to what’s really on the table: a chance to hold our ground, or a change to shift higher in yield (lower in terms of MBS Prices) past some significant pivot points. 10yr yields, while not higher than 2/09, are still on the verge of breaking out of their long term trend-channel, which passes through 2.034 today. (Of course, they’re currently higher than that, but it would take more than an intraday break to confirm). Current levels between 2.04 and 2.05 are also right on the the 50% retrace between the highs and the lows since August 2011. Just slightly higher it the 100 day moving average, which 10’s haven’t broken during the same time, but have tested on several occasions.
Long story short, testing of these technical trends + the thick volume suggests markets are essentially “deciding” how they feel about Greek bailout 2.0. MBS are holding up fairly well so far this morning, but will have to follow Treasuries to some extent if bigger shifts happen. That likely means a break below 103-00, but we’ll cross that bridge when and if we come to it. For now, 103-06 means Fannie 3.5’s are still holding the lower end of their long term trend channel.