With the exception of a few outlying trades, MBS traded an insanely narrow range today (between 105-03 and 105-06 in Fannie 3.5's).  This far exceeds any expectations for markets to "stay muted" ahead of Wednesday's FOMC events, and in a way, is almost spooky.  Mitigating the spookiness though is the interplay between domestic and European markets.  Instead of domestic bond markets holding eerily steady merely of their own accord, we can see that European markets paved the way for that eventuality as the Euro and Bund yield both fell below Friday's weakest levels.  If anything, we're seeing domestic bond markets ease off the accelerator a bit in order to "not rally too much" ahead of Wednesday.  10's hit today's 3pm marks within half a bp of Friday's.  MBS are currently on pace to end within 1 tick of Friday's 5pm levels. 

MBS Pricing Snapshot

Given the price action, it's been hard to detect that a major source of volatility, anticipation, and anxiety has come and gone over the weekend (Greek election). MBS have maintained a sideways, narrow grind all day long at slightly improved levels resting on 105-03 for Fannie 3.5s.

But at the present moment, that sideways grind is under heavy threat as headlines are breaking about a somewhat more rapid than expected formation of a unity government for Greece following the elections. It wasn't yet determined whether or not the 3rd place finishers in the election would join with the winning party to form this government or if they would simply provide a "vote of confidence," but the headlines indicate the former (a more firmly resolved outcome, and one which benefits risk/hurts bonds).

This isn't the world's biggest news, but it is having a moderate effect on bond markets at the moment. MBS are near their lows of the day at 105-03, and Treasuries are into their highest yields of the day with 10's getting close to 1.60, but holding underneath for now.

This volatility could easily prove to be the variety that can be "ridden-out," as a knee-jerk reaction to the headlines, but we'd watch for a break of 1.60 in 10's as a benchmark guidance giver, and then be paying careful attention to see if MBS follow the technical breakout with their own version taking Fannie 3.5's markedly under 105-03. Stay tuned!

There was a relatively big pop of volume just after 10:50 and Treasury yields moved up abruptly with stock prices. But the overall move was small, covering less than 2 bps of 10y yield and less than 3 pts in S&P futures before changing course and heading back toward previous levels.

MBS weathered the storm fairly well. Despite a brief, "spooky" dip to 105-00 in Fannie 3.5's, they're now back in the green for the day at 105-04. Best we can tell at the moment, the dip was merely "flow-related," and not attributable to any event, headline, or economic release.