RTRS- ECB NOT YET DECIDED ON WHETHER TO CONTRIBUTE TO GREEK DEBT RESTRUCTURING – EURO ZONE SOURCES
Treasury yields and stock prices are at their lowest levels since yesterday morning and MBS are at their 2-day highs after this news. Fannie 3.5’s are up 4 ticks on the day to 103-27. Based on the shape of MBS trading, we could conceive an early lender or two might be thinking about a positive reprice, but are somewhat hesitant based on two important factors.
First, there’s the 10yr auction coming up in about an hour and a half. Those have a tendency to exert at least a moderate impact on MBS, and sometimes more. Then there’s the very nature of the news…. More back and forth, he said, she said, in again, out again headlines concerning the Greek bailout negotiations. It’s not the first time we’ve seen a brief market movement in response to a headline that’s essentially the opposite of other headlines earlier in the day, and it won’t be the last.
Markets and mortgage lenders alike are well aware that it won’t be the last time, and are probably in agreement that it stands a really good chance of not even being the last time today. What we’re all wondering is how many more times will we see headlines like this play ping pong with bond prices and which one of them will ultimately drive trading direction more than the others. Balance that out with the 10yr auction results and there’s more uncertainty present than we’d like if we were going to put out reprices.
Bottom line, don’t expect broad-based involvement in any potential pre-auction reprices, although it is a possibility, and things are moving in the right direction. Whether or not things continue in that direction should be a lot clearer following the auction, and with more hours passing without a significant tape-bomb of Greek headline.