Prices of Treasury coupon securities reversed course today (dramatically) as the Treasury held a 30 year bond auction and nobody showed up for the party. Action in the stock market tamped down the animal spirits as equities which had broken sharply to new lows then rebounded robustly.The yield on the benchmark 2 year note has increased 5 basis points to 1.21 percent. The yield on the 3 year note climbed 2 basis points to 1.61 percent. The yield on the 5 year note edged higher by 3 basis points to 2.39 percent. It gets rather sloppy in the loner maturities as the weight of the supply cracked the market hard. The yield on the 10 year note climbed 8 basis points to 3.81 percent and the yield on the Long Bond jumped 16 basis points to 4.33 percent.
The 2 year/10 year spread is 260 basis points.
The 2 year/5 year/30 year spread is 76 basis points. The 5year flattened 2 basis points against the 2 year note and steepened 13 basis points versus the 30 year bond.
Economic data released today was bond market friendly. I discussed the claims data this morning and they are at cycle highs. The last time they touched this level was in September 2001 as events associated with the terrorist attacks jacked up the numbers.
The trade balance data compelled economists to revise Q3 growth estimates lower. The first cut from the Commerce Department had GDP declining 0.3 percent in Q3. JPMorgan economists revised their estimate of Q# growth to -0.8 percent from -0.7 percent. Economists at JPMorgan note that the decline in exports (biggest decline in nearly two decades) is a precursor of future trends.
Mortgages are about unchanged to swaps. Five year and 10 year swaps are 5 basis points to 6 basis points wider. There was some short covering from fast money clients short the basis and a round of euphoria following the news that the government has purchased $21 billion of MBS in October.
