The Day Ahead: Data Offerings Lack Punch to Offset Looming EU Vote


Stronger than expected employment data, via weekly Jobless Claims
printing 348k versus a 365k consensus, combined with a poorly received
30yr TIPS auction, Greek/ECB bond swap news, and possible positioning
ahead of a 3-day weekend with significant news waiting on the other end,
sent 10yr yields higher and MBS prices lower at their quickest pace of
the week on Thursday.  Volume was also as high as it’s been since NFP
day, edging out 2/9 just slightly. 

Bond Markets weakened at a
leisurely pace in the morning when compared to the jolts from the bond
swap news and TIPS Auction.  MBS had settled into a range that it likely
would have been content to hold barring those latter events–sitting on
a supportive pivot at 103-18.  But as it happened, the news that the ECB
would swap out their Greek holdings over the weekend (theoretically a
house-keeping measure to facilitate a smoother private-sector sign-up on
Monday, fingers crossed), was enough to ratchet both MBS and Treasuries
to the weaker side of supportive pivot points (10yr’s version is around

Recall the announcement on Wednesday that the Eurogroup will be reconvening on Monday Feb 20th
(a domestic market holiday)to hopefully hold another vote on the Greek
bailout.  We posited yesterday morning that this fact, combined with
Auction supply in the week ahead could leave bond traders feeling a bit
defensive heading into the 3-day weekend.  When things like yesterday’s
bond-swap news cross the wires, it gives one the impression that
Monday’s vote should be taken seriously if the ECB decides that NOW is
the time (when they’ve certainly had the chance before) to get off the
sinking ship.

Really, nothing has changed about these “defensive
dynamics” except for trading levels.  Trading around 2%, 10yr notes are
better insulated from more violent sell-offs, but given the prevailing
range over the long haul, we’re not sure it’s quite high enough to be a
no-brainer re-entry point without some significant motivation (by
reentry point, we mean yields might not be high enough to entice buyers
back into the market).  Once you start adding in that 3-day
weekend+auctions+Greek vote business, we’re increasingly skeptical that
bond markets will find a big bid and come stampeding back down into the
low 1.9’s, or Fannie 3.5 MBS back up to 103-29.

The only hopes for such a thing happening would be a good
combination of nasty European headlines–you know…  something that
really flies in the face of yesterday’s news and casts doubt on Monday’s
events–and lackluster economic data.  The only problem is that
tomorrow’s economic data include only CPI (is anyone really that worried
about inflation at the moment?  We don’t see it, but maybe a super tame
core month-over-month reading could help out bonds to some extent) and
Leading Indicators (no one cares, really…  In fact, L.E.I., we
challenge you to move markets in one direction or another… ever!  If
you do, we will pay attention to you!  Until then, you’ve been replaced
by TIPS auctions apparently, as yesterday’s moved the needle more than
enough to pay attention next time). 

Seriously though…. Neither
of these two reports stand a good chance to kick the day off in such a
way that we’d see the same sort of “ratcheting” movements that we saw in
yesterday’s sell-off (i.e. periodic, noticeable pops in trading level).  It would take a serious European headline.  If
we don’t get one, we’d expect to be under pressure yet again, and thus,
won’t be much bothered to see another day in the red, knowing that it
would be logical flow among bigger, broader currents.

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