The Day Ahead: Less Greek Drama, Consumer Sentiment, Black Hole Eats Star


Treasury yields are backing up as the stock market seeks to avoid a seventh consecutive week of declines.

Here is the short and sweet explanation…Greece is still dominating
headlines. It APPEARS we’re getting closer to Greek bailout 2.0. Merkel and
Sarkozy were getting cozy this AM in Berlin. A new Greek finance minister is now in
place. 10-yr Greek debt spreads are 108bps tighter vs. US 10s. Greek 2yr notes are over 200bps
tighter vs. US 2s.The Euro is +0.46% vs. $US. SPs +0.93% at 1269. Profit taking seen in
bonds overnight. Some short selling this AM. Rates are moving higher.

FX Street took a little more time to explain: “The Greek situation continues to dominate the headlines today,
with the most recent news being that German Chancellor Angela Merkel
has conceded that any new aid program would include the “voluntary”
participation of the private sector. The announcement came at a joint
press conference between Merkel and French President Nicolas Sarkozy,
who had put up strong resistance to the German proposal of private
creditors swapping bonds for new ones with longer maturities. Instead,
France favors the softer option of asking Greek bondholders to buy new
Greek debt as their existing holdings mature.”


“In an effort to shore up political confidence amid the ongoing debt crisis, Greece´s Socialist government announced a broad reshuffling of ministers with Evangelos Venizelos as the new finance minister, replacing George Papaconstantinou who will become environmental minister. The move is an attempt to muster support for harsh reforms conditioned to further bailout funding currently on the table, triggering violent protests on the streets of Athens in recent days.”

Plain and Simple: The (n)ever-evolving game of Greek “can kicking” is taking an intermission. The final act of this drama is still unwritten…

Stocks are clinging to this news. SP 500 futures are 11.75 points higher at 1,269.00. On Thursday, the
SP was up 0.24% since Monday, while the Dow was 0.8% higher, so
today’s market is decisive in whether the markets will end a seven week losing streak.

The benchmark
10-year Treasury note yield is up to 2.967% in early trading, four basis points higher than Thursday’s finish. The two-year yield is one basis point
higher at 0.395%, and the 30-year yield is four basis points higher at
4.207%. Rate sheet influential MBS are -2/32 at 100-23.

“The US$ index is weaker for the first time in three days
this morning, with most currencies gaining ground against the
greenback,” said economists at BMO Capital Markets. “After trading as
low as $1.4075 this week, the euro has rebounded today to $1.4275, not
bad considering the headlines over the past week.”

Light crude
oil tumbled overnight, trading 1.26% lower at $93.75 per barrel. Gold
prices fell modestly, down 0.10% at $1,527.70 per ounce.

Key Events Today:

9:55 – It’s hard to imagine Consumer Sentiment moving
upwards with unemployment rising and the stock market tumbling for six
consecutive weeks, yet that’s what economists are forecasting. Well,
somewhat. The consensus forecast is 74.5, up one-tenth from 74.3 in

Economists at Nomura say falling gas prices should produce
“slightly better attitudes” despite national per-gallon prices being at
$3.90 in May, about $1/gallon higher than a year before. They predict a
75.1 score.

Analysts at IHS Global Insight predict a fall to 70.3.

payroll numbers were disappointing, household net worth is taking a
beating from falling home prices and volatile stock markets, and
gasoline and food prices are still relatively high,” they said. “The
good news is that gasoline prices are off their peak, providing relief
to already strained household budgets.”  

10:00 – A week of data helpfully concludes with the Leading Economic Indicators index,
a composite measure aimed to forecast turning points in the economy.
The index fell 0.2% in April – breaking a nine-month trend of gains.
This month the index is anticipated to rise 0.2%, which economists at
Nomura call “a tepid rebound.”


If you watch the 10yr note and are wondering why loan pricing just isn’t keeping up with recent rallies…I rambled off an explanation last night. CHECK IT OUT:   “Risk Off”: MBS Buyers Missing in Action

If you’re tired of reading about the bond market, this is cool: Black Hole Caught Eating a Star, Gamma-Ray Flash Hints

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