It’s almost as if markets slept in for the next 4 days of the week after the morning alarm indicated that Greece’s bond-swap negotiations were still in limbo. We could well imagine the potentially interested bond trader saying “wake me up when it’s over.” In this case the “it” would refer to just one of the many phases in the ridiculous parade of “maybes,” “yeah buts,” and “it’s unclear whether or nots” that have come to define the Greek “situation.”
Perhaps there’s some sort of script at work here…. Risks are called out, markets fear Greek withdrawal, trade accordingly, then the counterpoint comes in, then it’s shot down, then new news about some program/initiative/meeting/phone call/negotiation/summit/etc… takes markets back to the other side of the ping pong table, then fails to pan out as planned, leading back to the same initial questions that sparked the panic. Vicious cycle x 10.
But fool me 17-18 times, shame on me! Market participants are starting to simply not react to the wolf cries, instead waiting for meatier details to emerge. And so it is that days like today happen… Bond markets fly in quite bullish holding patterns, ready to break the range or bounce within it, but not fully committing to either one of those moves until more conviction is inspired.
On a side note, we’d almost completely disregard the late day price declines in MBS. Most of the weakness hit right at the 3pm close as volumes in benchmarks picked up for the first noticeable time since Friday morning, a clear indication that tradeflows were pushing MBS lower in illiquid, after-hours trading conditions (as opposed to MBS experiencing weakness for some fundamental reason). Most lenders will not think twice about this weakness, but one or two might see justification for a negative reprice.