Given the price action, it’s been hard to detect that a major source of volatility, anticipation, and anxiety has come and gone over the weekend (Greek election). MBS have maintained a sideways, narrow grind all day long at slightly improved levels resting on 105-03 for Fannie 3.5s.
But at the present moment, that sideways grind is under heavy threat as headlines are breaking about a somewhat more rapid than expected formation of a unity government for Greece following the elections. It wasn’t yet determined whether or not the 3rd place finishers in the election would join with the winning party to form this government or if they would simply provide a “vote of confidence,” but the headlines indicate the former (a more firmly resolved outcome, and one which benefits risk/hurts bonds).
This isn’t the world’s biggest news, but it is having a moderate effect on bond markets at the moment. MBS are near their lows of the day at 105-03, and Treasuries are into their highest yields of the day with 10’s getting close to 1.60, but holding underneath for now.
This volatility could easily prove to be the variety that can be “ridden-out,” as a knee-jerk reaction to the headlines, but we’d watch for a break of 1.60 in 10’s as a benchmark guidance giver, and then be paying careful attention to see if MBS follow the technical breakout with their own version taking Fannie 3.5’s markedly under 105-03. Stay tuned!