Treasuries and MBS opened in weaker territory after Germany’s Constitutional Court approved the ratification of the ESM. The approval was expected, however, and so it was the conditions of the approval that markets have been waiting for. If the conditions made things seem general “tougher to get done” with respect to using the ESM to provide liquidity to troubled Euro-zone states, bond markets likely would have reacted more positively. But as it stands, there aren’t any major surprises among the conditions, and at first blush, they actually seem a bit tame.
Markets reacted in logical fashion with Euro stocks gaining and bond markets selling off at a medium pace. The whole experience runs the risk of being anticlimactic though, considering we’re only up 4 bps in 10yr Treasuries and down only 7 ticks in Fannie 3.0 MBS (NOTE: the chart may look like we opened down much more than 7 ticks, but that’s due to The Roll. Basically, September coupons occupy the left side of the chart while October Coupons have the right, at least for Fannie and Freddie 30’s).
The morning’s data at home–Import and Export Prices–passed without a trace, leaving the cash stock market opens as the next interesting event, followed by the relatively uninteresting Wholesale Inventories at 10am. The next decidedly interesting event on the calendar is the 10yr Treasury Auction at 1pm.