Market Analysis

Bonds opened worse today as investors are taking two views of the situation in Greece. One view is that Greek Prime Minister Papandreou will not survivie a confidence vote in Parliament this Friday and that a new government will cancel the referendum that Papandreou announced so that the Greek people can give an up or down vote to the bail-out deal and its correspondending austerity measures.  The other view is that the Greek people, when faced with the prospects of auterity measures or the alternative of defaulting and leaving the European Union will choose the bail-out and austerity.  A strategy typically involved in a default is to default as a means towards renegotiating debt repayments.  Given that there is already a deal on the table for private investors to take a 50% hair-cut, which would be typically considered a "win" for the defaulting country, a Greek default and the bad feelings that it would engender would probably mean not only a cut off of funds to Greece but also very limited aid from typical lenders of last resort like the International Monetary Fund (IMF).  As such, a default would probably not be an enjoyable experience for the average Greek citizen.

In US economic news, ADP's October Private Sector Payroll Report showed 110,000 jobs added vs expectations for 100,000.  The Federal Reserve is concluding their 2-day meeting today and many are hoping a new round of Quantitative Easing will be announced.  It is interesting to note that bond prices are weaker in front of the Fed post meeting statement.  Lately Fed announcements have been encounted with initial enthusiasm in the rate markets followed by moves higher in rates.