This recap will largely be a reiteration of content from the Mid-Day article as there have been no material changes in fundamentals since then. In general, the Mid-Day and Recap articles will be limited on days like today as my resources are primarily devoted to MBS Live members and less to rewording the significant amount of content that we’re discussing on MBS Live throughout the day. Personally, I couldn’t imagine the service not being worth $38 a month for anyone who takes their origination career seriously, but feel free to check it out for yourself and let me know. (Learn more here or simply start a risk-free trial)
Bottom line, markets are coming to terms with the realization that Greece is staying in the Eurozone. Today’s move had none of the quintessential “big headline pop” that we’d see on a big NFP or FOMC day. It was a massive, determined, lumbering brute that moved in measured, relentless steps. There were no huge vertical movements where 10-second blocks of trading include a significant amount of the day’s range and several hours worth of volume. It was an all day affair.
It’s not all about Greece either, but also about the fertile environment for the sell-off. That might sound a little weird considering we’ve been talking about value buyers stepping in to stop the bleeding in bonds after 10yr yields hit 2%, but therein lies the problem. That was a very popular way to approach recent weakness, and indeed many traders got long (bought bonds) when 10yr yields hit these seemingly important technical levels. Unfortunately, when that happens, the side effect is vulnerability. An overabundance of “longs” (bets that rates are ready to move lower) is susceptible to being “stopped out” (forced to sell if rates move higher quickly enough). That’s part of the drama today, and often a key ingredient in snowball selling.
All that having been said, things could still go either way, but it makes better sense to err on the side of caution until something conclusive happens in Europe. We could still bounce back from recent weakness, but we can’t rule out the possibility that it continues.