Resistance in MBS...

It was a a down day in the market, to start... slowly we dug out of a 5 tick hole and found ourselves even on the day with a half day left. With the equities market rallying, bonds were behaving very bullish holding there ground in the face of a 200 point rally in the DOW. Ultimately we finished two ticks down, but that ain't bad in the face of a 200 pound bully.

Meanwhile the ten year treasury sneaked down below 2.00 yield finishing at 1.9889. It's clear it would have been a different day had treasuries behaved differently. Alas, they didn't, and here we sit waiting for news from the the Europeans.

It's no surprise as far as I'm concerned that Greece is about to fail, question is are they able to keep it together for a little while longer. If so, we may see our markets sell off, which in my opinion are anticipating the failure of Greece. The stock market on the other hand was drinking the KoolAid, yes, the funky kind and for some reason saw reasons to be bullish, as if trying to buy the market higher (in fact this is what hedge funds and other large players may have been trying to do) only to watch it slide twice as far down.

Anyway you cut the cheese it looks like we're going to see a sell off tomorrow in equities which on a normal day would probably lead to a rally in our markets, if the sell off is strong enough; sure, perhaps we gain a couple, but honestly I think it's going to take a larger event to push interest rates down into new low territory.

Greece is something everyone is somewhat prepared for, for better or worse. In other words, it's yesterdays news. Those that think it will lead the stock market higher are (crazy - my opinion) positioned that way, those that think it will lead bonds higher are strong in bonds; therefore it is possible a Greek implosion doesn't move the markets as much as one might think it would.

It may take something more, something less expected, something bigger than little old Greece. That something is Italy, making a lot of news lately as it's 10 year bond yields have risen above 6.000 percent and held, trending upward. This is frankly something Italy cannot afford, which means bailout. This would be cataclysmic in comparison to Greece - and a failure of this magnitude would in my opinion result in a massive stock sell off as the Eurozone prepares for massive reform, leading to depression and most likely hyperinflation, which will send money into our markets, primarily bonds as large international companies adjust future earnings based on the chaos that would surely ensue.

At this point in time, rates would move to a new low point. I have heard no one else predict when this might happen, I give Italy 12 months. Don't hit me if I'm wrong.