After clawing back to breakeven levels from much weaker territory overnight, bond markets weren’t eager to progress into better territory as a few big block trades pushed yields higher just after 9am. The domestic stock market open helped things moderate, and 10yr yields held supportively at 1.6557 and Fannie 3.5’s at 104-26.
With an empty data calendar today, markets are tuned-in to the Spain bailout information/reaction, where conflicting headlines and midstream changes of plans are causing renewed safety buying in Treasuries, bringing MBS along for the ride.
Most recently, it was the flip-flopping on the decision of which EU bailout entity will fund the Spanish bailout that helped bond markets solidify a bounce back that already seemed to be in progress. It was thought earlier that the ESM would be the more likely source for funding (read more…), but wires out just after 10am suggested that the bailout could come instead from the EFSF in the form of bonds–similar to the Greek recapitalization–that could then be taken over by the ESM.
10yr yields fell from 1.63 to 1.615 on the news. Fannie 3.0’s are up 2 ticks on the day at 102-12 and 3.5’s up 2 ticks at 104-31.
For the record, we’re not convinced that the post-10am movement is due to the EFSF headline itself (it does make things a bit more complicated, not to mention that the Finnish government really doesn’t care to take part in an EFSF-funded bailout without additional guarantees), or simply the lack of a forceful and unwaivering response in general.