Bond Expert: Election Day Wrap

Prices of Treasury coupon securities surged today as the massive buying in spread product markets percolated into the treasury market. The yield on the 2 year note dropped 6 basis points to 1.37 percent. The yield on the 5 year note dropped 16 basis points to 2.54 percent. The yield on the 10 year note collapsed by 17 basis points to 3.74 percent and the yield on the Long Bond dropped 12 basis points to 4.21 percent. The 2 year/10 year spread narrowed 11 basis points to 237 basis points.

The 2 year/5 year/30 year spread closed the day at 50 basis points. I believe I closed it at 35 basis points yesterday.

Certain sectors of the Treasury market have languished in the same way that spread product have. There was end user interest today in some of that paper. The bond contract which represents a basket of off the run bonds improved 15 basis points today. At 300PM when futures closed the 10 year was better by 10 basis points and the 30 year was better by 10 basis points. One can see the improvement in that data as the contract outperformed the wings.

The corporate bond market joined the rally as the IG 11 closed 16 basis points better today at 182/184.

The Amex 5 year upon which I regularly heap ridicule and derision had a great day as it rallied nearly 100 basis points on the bid side. It is currently 735/725.

Agency spreads participated in the spread product orgy as spreads moved sharply narrower. Two year spreads are tighter by about 15 basis points and 5 year spreads have narrowed about 12 basis points. Ten year spreads have edged lower by about 8 basis points.All of the Agency benchmarks have rallied from their worst levels versus Libor. That has been an ongoing process. Two year agencies are Libor plus 17 and had been as wide as Libor plus 47. Five year spreads traded Libor plus 50 and are now Libor plus 25. Ten year spreads traded Libor plus 80 and are trading today at Libor plus 60.

Freddie Mac (FRE) passed today on issuing benchmark debt. They have been active issuers in the short term market and apparently do not need the cash out the curve.

One analyst with whom I speak noted that the inclination of several very large foreign investors to sell agencies has abated.

There has been chunky buying of the one year and shorter sector by end users.