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Hold the phone!!! Mortgage Bonds are trading higher, building on the gains of the past two days. What happened?

In a surprise move late yesterday, Greece Prime Minister Papandreou said he is putting the just announced Euro bailout plan to a referendum or vote with the people of Greece. This means if the Greek people vote down the newly proposed austerity measures, Greece will not go with the plan and will surely default in an uncontrolled way, threatening great turmoil for all the Eurozone countries and beyond.

And based on what we’ve seen out of the Greeks so far, it unfortunately seems unlikely that they’ll suddenly embrace the concept of austerity. What incredibly weak leadership this shows on the part of Papandreou –rather than accepting current circumstances, doing the right thing and taking the heat that may come with it, he’s washing his hands of the deal, and saying the “Greek people should decide,” all in an attempt to save his own political skin.

The referendum will likely not take place until January, but is a heated and quickly developing story. European leaders have responded with dismay, and German Chancellor Merkel and French President Sarkozy are to meet about this today. Don't expect a quick resolution here– but due to this breaking story, the US Dollar and our Bonds are receiving a safe haven trade to avoid the uncertainty.

The news sent Stocks plunging yesterday and the downward pressure is following through today. Also weighing on Stocks this morning is news that China's factory activity fell to its lowest level since February of 2009.

Here at home, the Fed members began their two-day regularly scheduled meeting, with the monetary policy statement being released tomorrow at 2:15pm ET. As mentioned in our Market Text Alert after the close of trading and Update yesterday - we would like to continue to Float into tomorrow's announcement, if the market will allow us.

We always saw more problems emerging from Europe, but we didn't expect them to arise during this "honeymoon" phase. The Euro Bailout plan is definitely off to a shaky and uncertain start. Short of a miraculous turnaround of recent events, our Bonds should continue to benefit from the pessimism, uncertainty and lack of confidence.