MBS Pricing Snapshot

One of the two major considerations for bond markets this week is Wednesday's German Constitutional Court vote on the European Stability Mechanism, or ESM. The Telegraph is reporting (read more) that the vote may be delayed due to new concerns relating to last week's ECB Bond-Buying Announcement. A German Politician has argued that "the ECB move alters the situation and the court must now first decide whether the central bank's bond purchase programme is legal before it can rule on the constitutionality of the ESM rescue fund" according to the Telegraph.

In response, the court says they'll hold an emergency session to decide by Tuesday morning whether or not to postpone Wednesday's ruling. We don't have a read on how likely an actual postponement would be as a result of this challenge, but as silly as the idea seems, we'd imagine the court would simply say "no" to the lawmaker in question as opposed to holding an emergency meeting.

Bond markets improved slightly during the Asian hours of the overnight session, but reversed those gains during European hours, ultimately sliding to slightly weaker levels than Friday's close between 8:20 and 8:40am New York time. Even now, 10yr yields remain in slightly negative territory whereas MBS are 1 tick in the green with Fannie 3.0s at 103-23.

There was little by way of significant market-moving news overnight, despite lots of "tidbits." Some of the more noteworthy news items since Friday include several takes on Greece's creditors asking for clarification on austerity measures with the WSJ going so far as to say parts of the austerity plan are "rejected." Italy's prime minister says no to additional conditions attached to ECB bond-buying according to Reuters and The UK Telegraph echos the sentiment saying that the strict terms for Italy and Spain threaten the bond-buying plan.

Generally speaking though, none of the overnight events elicited a major reaction in terms of volume or price action with the long end of the yield curve simply selling off since about 3am and recently moving sideways as we wait for the domestic stock market open. There's nothing on tap data-wise this morning, though Consumer Credit hits at 3pm Eastern.

On a housekeeping note, tomorrow is "Notification Day" for Fannie and Freddie 30yr MBS. As such, prices will "drop" at the close tomorrow as we change from viewing September coupons to October.