MBS Pricing Snapshot

Given the lack of fundamental causality, there's no telling how long this will continue to be the case, but Fannie 3.0s and 3.5s just hit new highs on the day as 10yr yields and stocks hit session lows. This is a bit of a departure from the previous state of affairs that had all of the above markets drifting sideways after some morning volatility.

Fannie 3.5's are up 6 ticks on the day at 105-04 and 3.0's are up 7 ticks at 102-18. We've seen one positive reprice so far, and while it's possible others will follow, that becomes more likely if recent gains are held for a bit longer, or improved upon.

There were three distinct waves of volume in Treasury futures this morning. The first brought minor weakness as the domestic session got underway resulting in a test of high yields at 1.6557.

The second wave arrived in concert with the 9:30am stock market open. Stock futures had already fallen plenty from the loftier midnight levels (mid 1340's to mid 1330's), but at least another 10 point slide began at the 9:30am open, helping 10yr yields fall further, and MBS prices break into the green.

The third wave looks to be have been an expedition to determine support levels for stocks and resistance levels for bonds. It began with another mini volume surge and more "risk-off" movements (10yr yields and stock prices lower, MBS prices higher), but put in a distinct bounce at 1.591 in 10yr yields and 105-03 in Fannie 3.5's. The S&P experienced it at 1320 (after opening at 1335).

Everything since then has just been casually drifting back in the other direction, looking anything but frantic or volatile at the moment. In fact, the extent to which the movement has been "in the other direction" is already looking questionable. We'd probably lean toward classifying the current price action as "sideways, just slightly off highs."

(Reuters) - European finance officials have discussed as a worst-case scenario limiting the size of withdrawals from ATM machines, imposing border checks and introducing capital controls in at least Greece should Athens decide to leave the euro.

EU officials have told Reuters the ideas are part of a range of contingency plans. They emphasized that the discussions were merely about being prepared for any eventuality rather than planning for something they expect to happen - no one Reuters has spoken to expects Greece to leave the single currency area.

Belgium's finance minister, Steve Vanackere, said at the end of May that it was a basic function of each euro zone member state to be prepared for problems. These discussions appear to be in that vein.

But with increased political uncertainty in Greece following the inconclusive election on May 6 and ahead of a second election on June 17, there is now an increased need to have contingencies in place, the EU sources said.