MBS Pricing Snapshot

The overnight session saw more than its usual amount of volume and volatility albeit on limited trading motivation. 10yr yields made it as high as the low 1.77's before falling back to 1.72's just after the domestic open. Fannie 3.5 MBSopened roughly in line with Friday's closing levels and currently trade -0-01 on the day at 104-14. 10yr TSYs are currently at 1.7397.

With no major headlines overnight or this morning, bond markets have generally been following the 'risk-on/risk-off' trade, with a reasonable degree of correlation to stocks, though TSYs have recently held their ground on several occasions vs spikes in stock prices (in other words, while there is some correlation, bond markets don't seem willing to chase rising stocks indefinitely). An increasing amount of focus seems to be on the upcoming EU Summit on Wednesday, from which markets hope to see meaningful crisis management strategies emerge.

Apart from Wednesday, we're also being asked to hold our breath for Greek elections in June where polls are showing a "dead-heat" between pro-bailout and anti-bailout leaders if the election were to be held now, according to Reuters. That said, anti-bailout leader Tsipras was out yesterday saying that he would pursue talks with EU leaders on terms to keep Greece in the Euro-zone.

This is a marked change in tone, and frankly, we were surprised 10yr yields continue to hold in the 1.73's considering the picture being painted of a slightly less likely EU exit. But no matter the suggestion of the anecdotal evidence, broader uncertainty remains and likely can't be fully resolved until after the elections (see the 9:51am update on "majority of Eurogroup Would Vote For Greek Exit" for a good counterpoint here).

In addition to the Greek vote next month, there are plenty of medium to large-sized interim considerations including, but not limited to this week's EU Summit, next week's heavy Thursday/Friday of data including NFP, the ongoing development of Spain's banking problems.

With essentially no data today, we're just sort of floating where the currents of "risk" may take us. We continue to see that river as relatively well-contained with market participants not being keen to do anything "too different" from other market participants in these vastly uncertain times. EU collapse and Fed QE3... Only more clarity on the likelihood of these two things will significantly alter the range.

Officially, euro zone governments say they're not talking about a Greek exit from the euro zone. But it's a different story behind closed doors. Finance ministers meeting in Brussels last Monday threatened to evict Greece, SPIEGEL has learned. Meanwhile, Germany denied reports that Chancellor Angela Merkel called for Greece to hold a referendum on the euro.

Despite official claims to the contrary, the governments of the euro zone are threatening to kick Greece out of the currency union. At a meeting of euro-zone finance ministers last Monday in Brussels, it was made clear to Greek Finance Minister Filippos Sachinidis just how serious the situation had become.

"If we now held a secret vote about Greece staying in the euro zone," Euro Group Chairman Jean-Claude Juncker warned his Greek colleague, "there would be an overwhelming majority against it." Other participants in the meeting also had harsh words for Sachinidis, with particularly strong criticism towards Athens coming from Portugal and Ireland, countries that have also accepted bailouts in the crisis.