Bond markets have reacted in a generally positive way to today's 10yr note auction. The high-yield awarded was 1.1 bps lower than "when-issued" yields just before the release (this is bond-market friendly as it means that yields were slightly lower than the street was expecting) and the bid-to-cover of 3.05 was very close to its historical average of 3.02.

This is good to see considering the headwinds facing bond markets today, including the seemingly endless uncertainty as to the eventual outcome of Greece's bailout negotiations. Earlier today, markets began pricing in news that the ECB would conspire with the EFSF to effectively reduce Greece's debt load without the ECB technically being the one to pull the trigger. 10yr yields rose above 1.99% several times after that news initially hit, but pulled back later in the morning after the ECB said it was as yet, undecided on its participation in the Greek bailout.

Following the auction, 10yr yields moved down from 1.99 to 1.975m and MBS held onto a supportive trend of higher low’s from yesterday afternoon to move from 103-24 before the auction to 103-26 currently.

All told, these moves are fairly limited in magnitude, but we wouldn’t expect traders to want to overcommit in either direction at the moment considering the multiple possible outcomes of the Greece situation, not to mention one more significant auction to go (tomorrow’s 30yr bond). In fact, given those headwinds, we’re pleased that things have held up as well. The current positivity may not be enough for additional likelihood of positive reprices, but it remains a possibility for some.

The Federal Reserve Bank of New York ("New York Fed") today announced that it has sold assets with a current face value of $6.2 billion from its Maiden Lane II LLC ("ML II") portfolio through a competitive process to Goldman Sachs & Co. Proceeds from this sale and the January 19, 2012 transaction, will enable the repayment of the entire remaining outstanding balance of the senior loan from the New York Fed to ML II on the next payment date in early March. The original amount of the senior loan was $19.5 billion.

The transaction was prompted by an unsolicited offer from Credit Suisse Securities (USA) LLC to BlackRock Solutions, the investment manager for ML II, to buy ML II assets. Consistent with its March 2011 announcement regarding the disposition procedures for ML II, which allowed for these types of reverse inquiries, the New York Fed directed BlackRock Solutions to conduct a sale via a competitive process. The five broker-dealers included in the competitive process were Barclays Capital Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co., Morgan Stanley & Co. LLC, and RBS Securities Inc. The broker-dealers were selected based on the strength of each of their recently submitted reverse inquiries for large parcels of the portfolio.

The New York Fed decided to move forward with the transaction only after determining that the winning bid represented good value for the public. Net proceeds from the sale will be reported as part of the portfolio’s normal reporting schedule on April 16, 2012.

William C. Dudley, President of the New York Fed, said, "I am pleased with the continued interest in these assets and am especially gratified that the New York Fed's loan to ML II will be repaid as a result of the sale announced today."

RTRS- ECB NOT YET DECIDED ON WHETHER TO CONTRIBUTE TO GREEK DEBT RESTRUCTURING - EURO ZONE SOURCES

Treasury yields and stock prices are at their lowest levels since yesterday morning and MBS are at their 2-day highs after this news. Fannie 3.5's are up 4 ticks on the day to 103-27. Based on the shape of MBS trading, we could conceive an early lender or two might be thinking about a positive reprice, but are somewhat hesitant based on two important factors.

First, there's the 10yr auction coming up in about an hour and a half. Those have a tendency to exert at least a moderate impact on MBS, and sometimes more. Then there's the very nature of the news.... More back and forth, he said, she said, in again, out again headlines concerning the Greek bailout negotiations. It's not the first time we've seen a brief market movement in response to a headline that's essentially the opposite of other headlines earlier in the day, and it won't be the last.

Markets and mortgage lenders alike are well aware that it won't be the last time, and are probably in agreement that it stands a really good chance of not even being the last time today. What we're all wondering is how many more times will we see headlines like this play ping pong with bond prices and which one of them will ultimately drive trading direction more than the others. Balance that out with the 10yr auction results and there's more uncertainty present than we'd like if we were going to put out reprices.

Bottom line, don't expect broad-based involvement in any potential pre-auction reprices, although it is a possibility, and things are moving in the right direction. Whether or not things continue in that direction should be a lot clearer following the auction, and with more hours passing without a significant tape-bomb of Greek headline.