The first day of the week got off to an exceedingly uneventful start, albeit a positive one for bond markets.  Summit-weary markets stashed cash rather than seeking risk ahead of yet another EU Summit later this week while Spain "made it official" with respect to it's bank bailout request.  Cypress followed shortly thereafter with it's own bailout request, further fueling an in-progress and subdued flight-to-safety.

The Cypress bailout wasn't completely unexpected--indeed it was raised as a possibility several times in the recent past--and had most recently been linked to Greece's election outcome.  But while it may not have been surprising and certainly isn't that large compared to other Euro-zone bailout requests, it is yet another country to add to the list.  It continues to establish precedent.  It continues to stoke fear among the countries at the other end of the fiscal spectrum, and the markets beyond.

Is it causing a massive equities sell-off and bond market rally?  No...  Was it the only piece of news yesterday pushing junior varsity versions of the stocks selling/bond rallying?  No...  Was it part of a sort of general pre-EU-Summit malaise?  Indeed, and it's this malaise that we're interested in at the moment.  That's one part of this week's market moving equation along with the domestic economic malaise.

 To a lesser extent, Treasury auctions and month-end trading considerations may come into play, but at this point we think those two factors are small potatoes compared to the two "biggies" that got us where we are in the first place: Euro collapse and QE3(?).  Both of those are getting bits and pieces of information this week from headlines and ultimately the Summit in Europe on one hand and a generally more robust domestic economic calendar on the other. 

What interests us most (or concerns us, as the case may be) is what the outcome would be if this two "biggie" factors get a moderate dose of information that suggests similar movements by each of them on the risk spectrum.  In other words, if the outlook for the Euro-zone brightens at the same time as domestic data is looking "mmm, maybe not as bad as we thought it might be," then that could be pretty bad for bond markets in the short term.  Fortunately for rates, that feels like a very tall order these days, but we remain prepared for the worst while hoping for the best.

Today brings the Treasury auction that we care least about this week in the form of 2yr Notes.  In fact, it wasn't even one sentence, let alone this one.  More germane to the domestic data factor are the Consumer Confidence numbers at 10am preceded by Case Shiller Home Prices at 9am.  Confidence is probably the bigger market mover of the two, but either one could trump the other if it's far enough away from expectations.