Bonds got beat up yesterday as a combination of overbought technicals, quarter-end debt auction supply, and a rally in the stock market all pressured interest rates significantly higher. The 10yr note went out +10.6bps in yield at 3.035% while "rate sheet influential" MBS coupons closed -18/32 at 100-14. Treasuries are once again weaker for the third consecutive session his morning and equity futures
are better as Greece prepares to accept an unpopular five-year austerity package.
The two-year Treasury yield is steady near 0.465%, the benchmark 10-year
Treasury yield is 3bps higher at 3.062% and the Fannie Mae 4.0 MBS coupon is -2/32 at 100-13. S&P futures are +3.25 at 1298, their best level since June 5th.
If Greek headlines are confusing you, don't worry, our brain hurts too. This is what we know...Greek Parliament is preparing to vote on whether or not they'll take another vote tomorrow. Basically what today's vote represents is a broad acceptance of a medium-term austerity plan. If it passes, which most expect it to even though many Greek lawmakers dislike it, Parliament will begin voting on individual clauses and the implementation strategy tomorrow. While the market has clearly baked in a "yes" vote today, tomorrow is a little less certain but it does appear we'll see another yes vote once all is said and done. This should give the EU, ECB, and IMF enough confidence to free up the 5th installment of Greece's bailout funds. Default avoided for now....but Greece is still "kicking the can down the road". The chance of a Greek default is not gone with two yes votes over the next two days.These votes simply cover short-term funding shortages. However, until these bailout funds are paid back, without a huge uptick in GDP growth, their solvency is still up in the air...and so is the potential for default. With many Greek lawmakers muttering under their breath about how unfair these austerity measure are...political gridlock is going to be an issue the next time Greece needs to pay the piper.
(NY TIMES) Greek Parliament Expected to Approve Austerity Plan - The Greek Parliament was preparing to vote Wednesday on a package of austerity measures the country must implement if it is to gain access to emergency international lending and stave off default, an outcome that could have major repercussions across the global financial system. Parliament was to vote on tax increases, wage cuts and the privatization of 50 billion euros, or about $72 billion, in state assets. Assuming the measures pass, a second vote will be held Thursday to implement the latest austerity program, with key sticking points expected to include the timing of the privatizations, especially of the state electric utility, Public Power Corporation, whose powerful union has close ties to the Socialists. The European Union, the European Central Bank and the International Monetary Fund have said they will release $17 billion that Greece needs to pay its expenses through the summer if Parliament passes the measures.
10-yr Greek debt spreads have tightened on this news. The Euro is holding above key support at 1.417. European equities are up over 1.50%.
Key Events Today:
10:00 - The Pending Home Sales Index declined a whopping 11.6% in April,
marking the third fall in five months and leaving the index at its
lowest in seven months. The consensus estimate looks for a 1% decline
in May, but according to High Frequency Economics, a spokesman at the
National Association of Realtors said pending sales were up 15% in May.
"The NAR complies the numbers, so it should know," HFE added. "An
increase of that size would more than reverse April's 11.6% drop."
12:00 - Fed Governor Sarah Bloom Raskin speaks on rebuilding road to
financial stability at the New American Foundation in Washington.
1:00 - Treasury auctions $29 billion 7-Year Notes