Singapore Markets Morning Briefing - what you need to know for Thurs Feb 16, 2012

Treasury yields generally fell amidst shaky risk assets.

GFT noted:

The euro fell sharply against the U.S. dollar today on the fear that Europe will allow Greece to default. Even though Eurogroup President Juncker released a statement after today’s conference call saying that substantial progress has been made, investors have grown tired of false promises.

There has been very little demand for euros because investors want Euro area Finance Ministers to release an explicit commitment on releasing bailout funds for Greece before they are willing to buy euros.

Although Juncker said he is confident that decisions will be made on February 20th, the problem of getting short changed too often is that you start to become immune to signs of progress. You can’t blame them however, especially when Greek government officials were quick to respond with critical and confusing comments.

According to Greek Finance Minister Venizelos, Greece “has met the majority of the terms” they have been asked for “in return for the (first) financing package, unfortunately we are continually faced with new terms.”

Greek President Papoulias isn’t playing nice either – he expressed his anger over the “insults” and “ridicule” by the Germans, Dutch and Finns publicly in a not so polite manner. Juncker believes that a deal is close but we have been there before and promises no longer suffice.

With this in mind, February 20th is not very far away. If the Euro area Finance Ministers manage to get their act together on Monday and make a decision on a second bailout for Greece, traders waiting on sidelines could jump back in quickly to bid the EUR/USD higher. Both the Eurozone and Greece have a lot to lose from a default and hopefully they understand the risks and will avoid it at all costs.

RBS, on the other hand, reported:

It is getting difficult to keep up with the ins-and-outs of developments in relation to Greece, delays and bridge loans and how each may or may not impact the PSI negotiations. Needless to say, the situation is making investors uncomfortable.

We recently thought that we could buy more time as we head to the February 29th LTRO allocation, but this isn't helpful and raises the prospect that the end game for the latest Greek aid package will being drawn out further in time.

So despite mixed but generally decent domestic data (2nd tier mind you), Treasury yields generally fell amid shaky risk assets. The exception to this was the 30yr, which felt pressure ahead of tomorrow's 30yr TIPS auction. We saw central bank buying of 3s, macro selling of 3s, leveraged selling in 10s, and domestic real money buying in 10s. Total Treasury broker volume today was 116% of the 10-day average.