Prior to 800am Treasuries were generally unchanged. At 800am news wires lit up reporting that Greece has passed the austerity plans necessary to get the funds to avoid default on March 20th. The reaction sent the 10-Year Note yield to 2.04%, however the MBS markets held firm at unchanged. While it appears that a deal within Greece on cutting spending has been accomplished, after all the false starts over the last six months markets are waiting for confirmation from the troika (ECB, IMF, and EU). After 45 minutes the ECB said it had gotten the word that a deal has been reached. European stocks rose for the first time in four days, U.S. index futures gained and the euro strengthened. By 900am the 10-Year Note yield increased to 2.05% and a there was a little more pressure on MBS prices. Greece faces a 14.5 billion-euro bond payment on March 20th and is struggling to obtain Financing to avert a collapse of the economy that could spark a new round of contagion in the euro area.
The ECB left interest rates unchanged at its policy meeting today. ECB Chief Mario Draghi said the economic outlook faces “downside risks.” “The economic outlook remains subject to high uncertainty and downside risks,” Draghi said at a press conference in Frankfurt today. Last month, he said the outlook was subject to “substantial” downside risks. The euro currency rallied on the Greek news and no change in interest rates but it was short lived and the currency backed off its strongest levels against the dollar, still however a little better at 900am.
Here in the U.S. Weekly Jobless Claims this morning were much better than what was expected. Claims were thought to have increased a little last week; claims declined 15K to a new recent low of 358K for new filings. Continuing Claims at 3.51 mil were up from 3.45 mil; Continuing Claims have been about this level for weeks.
The 10-Year Note yield jumped to 2.06% on the Greek newsthen found support for the moment at 2.05%. The equity market opened a little stronger at 930am on the news in Greece and the unexpected decline in Weekly Jobless Claims. The DJIA opened up +15, the 10-Year Note opened at 2.04% and MBS prices were down just slightly -3/32 (.09 bps) and unchanged from 930am yesterday.
At 1000am December Wholesale Inventories, expected up +0.4% was reported up 1.0%; the higher inventory levels will likely increase Q4 GDP a little when the preliminary report is out on the 29th.
At 100pm the final auction this week; $16B of 30-Year Bonds. Yesterday’s 10-Year Note auction met with good demand.
The market reactions on the Greek news has been rather subdued. The equity market was better but not much and the interest rate markets moved to their support level (2.05% on the 10-Year Note) and so far have held. The MBS market slightly lower in price. Traders and investors are taking the Greek news with a little grain of salt given the number of times in the past that failed. Nevertheless there will be a deal for Greece to get the funds necessary to avoid default. For the last four sessions the 10-Year Note yield has been increasing. Traders were exiting those safety trades that pushed the 10-Year Note yield to 1.80%. mortgage markets compared to treasuries have been stable with not much change while the 10-Year Note yield increased 25 bps from its low on Feb 1st.
