US Curve Flatter Despite a bid EUR

Even stronger domestic fundamental data cannot pressure US bond prices. Longer dated securities again have caught a bid on concerns that the Greek Prime minister has requested the country’s finance ministry to prepare a document on the implications of a Greek default. Earlier today Treasuries came under pressure as dealers prepared to take down +$72b of new product this week. The government is to auction +$32b in three-year notes tomorrow, followed by +$24b of 10-year debt on Wednesday and $16b long-bonds on Thursday.

Merkel and Sarkozy indicated in Paris this morning that time was running out for Greece.
Any negative headlines regarding Greece and rumors of default will only increase the markets appetite for risk aversion trading strategies. Before today, long bonds managed to back up +18bp over the past three trading sessions. Despite initially been oversold on the back of a stellar NFP report that saw the US unemployment rate improve three ticks to +8.3%, the 2/30’s yield curve has flattened -3bp to +286bp.

Prime Minister Papademos over the weekend asked the ministry “to record accurately and realistically all the consequences of the country’s exit from the euro zone.” Greece still has not come to an agreement on the austerity measures needed to qualify for a second bailout from the EU and IMF. Today, the Greek government has agreed in principle to axe -15k workers to fulfill one of Troikas conditions (a reason why the EUR has temporarily caught ‘a second wind’). Papademos needs to receive funds by March in order to avoid a ‘disorderly default’. Not helping market sentiment are the negotiations between Greece and the PSI bondholders remaining unresolved.

All parties concerned have a strong incentive to reach a deal and it would not be surprise to see an agreement in the next few days. However, once a deal is reached, markets again will begin to focus on the degree of actual participation in the swap by bondholders. The market seems to be looking for other reasons to apply risk aversion trading strategies.

The Nikkei closed at 8,929 up +97. The DAX index in Europe was at 6,764 down -2; the FTSE (UK) closed at 5,892 down -9. US indices remained in negative territory with the Dow currently trading at 12,819 down -43.

     

    Other links:
    Loonie at the Mercy of the Ivey

    U.S. Ten-Years:

     

    This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

    Dean Popplewell

    Dean Popplewell

    Vice-President of Market Analysis at MarketPulse
    Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
    Dean Popplewell