Just as light volume exaggerated the bond market losses on Friday afternoon, it helped things bounce back a bit this morning.  But even without the "help," overnight news and headlines would seem to suggest a stronger bond market this morning anyway.

Although it's not occurring in some dramatic "panic in the streets" fashion, we're greeted with the impression this morning, that the EU Summit is increasingly viewed as a failure. One can talk about the nuts and bolts of the proposed changes and how they might benefit the European economic landscape in years to come, but any such discussion is inherently SUBJECTIVE and SPECULATIVE whereas auction stats do not lie.

To wit, a 12-month Italian bill auction has the most profound commentary from the overnight session. Italy is generally regarded as the next shoe to drop after Greece, but in a more dangerously systemic way. So the fact that even with reports of the ECB buying short term Italian debt, and even after the EU Summit, and even with all the positive talk on Austerity measures last week, that the 1yr auction only improved to 5.952 from a 6.087% at the last auction, speaks volumes as to how the current situation has evolved---basically: not very well. In the more important longer maturities, the damage is worse: 10yr Italian yields rose 45bps to 6.83 pct earlier this morning, rapidly encroaching on the apocalyptic 7%+ zone. There are more auctions to come in Europe and Merkel will give a statement on the Summit in German Parliament this Wednesday. 

Elsewhere in the world of sovereign debt, we're gearing up for 3's, 10's, and 30's at home this week, beginning today with 3yr notes at 1pm. The process of discounting this upcoming Treasury supply could weigh slightly on bond markets, but that's currently more-than-offset by the overall "risk-off" shift following the EU Summit. 10yr yields are roughly 4 bps lower this morning, the curve is flatter, and Fannie 3.5 MBS are up 4 ticks at 102-03. There's no significant data between now and the 3yr auction.

Here's quick video of Fannie 3.5's and 10yr Treasuries this morning from MBS Live:

With Friday's Quadruple Witching (futures/options expiries), this week's data is condensed primarily into the central 3 days.  Keep in mind that the 3 year auction is a day earlier than normal, happening today at 1pm.  That also means that the mighty 10yr note auction occurs within a mere 1.25 hours of the FOMC Announcement tomorrow.  There's a bit of a lull in terms of domestic economic data on Wednesday, but the last of the auctions goes off at 1pm.  Then Thursday is a monster and Friday is left with only Consumer Prices to compliment the expiry. 

MONDAY

  • 100PM - 3yr Treasury Note Auction
  • 200PM - Treasury Budget

TUESDAY

  • 830AM - Retail Sales
  • 1000AM - Business Inventories
  • 100PM - 10yr Note Auction
  • 215PM - FOMC Announcement

WEDNESDAY

  • 830AM - Import/Export Prices
  • 1PM - 30yr Bond Auction

THURSDAY

  • 830AM - Jobless Claims
  • 830AM - Producer Price Index
  • 830AM - NY Fed Manufacturing (Empire State)
  • 830AM - Current Account (international trade balance)
  • 900AM - Treasury International Capital (foreign investment in US debt)
  • 915AM - Industrial Production/Capacity Utilization
  • 1000AM - Philly Fed Index / Business Conditions
  • 430PM - Fed Balance Sheet

FRIDAY

  • 830AM - Consumer Price Index