Prices of Treasury coupon securities took a severe pounding today as the Citibank (C) rescue ignited a stock market rally and a euphoria that enervated the treasury market.
The Treasury market suffered, too, from supply jitters as the Treasury sold $36 billion 2 year notes into light demand. The issue had a light bid to cover ratio and it tailed two basis points. The Treasury is busy this week and will sell $26 billion 5 year notes tomorrow. In this holiday shortened week dealers are hesitant to take inordinate risk.
Market participants also noted that there was chatter about a mega stimulus package which might total as much as $700 billion. That would require mammoth issuance above and beyond current projections and would pressure rates higher.
Others spoke of a second leg of the TARP program and the financing which would accompany that process.
On the supply front, others mentioned the Goldman (GS) and Citi FDIC deals and expressed concern that the floodgates have opened for heavy issuance from that quarter.
Risk appetites have returned as stocks have gapped higher for a second day. One well know technician (Gartman) suggests that the breakout in Euro/yen is a signal that fear is subsiding.
The yield on the 2 year note has climbed 11 basis points to 1.21 percent. The yield on the 3 year note has tumbled 17 basis points to 1.52 percent. The yield on the 5 year note climbed 19 basis points to 2.22 percent. The yield on the 10 year has jumped 15 basis points to 3.34 percent. The yield on the Long Bond has climbed 6 basis points to 3.76 percent.
The 2 year/10 year spread is wider by 4 basis points at 213 basis points.
The 2 year/5 year/30 year butterfly cheapened markedly finishing at 54 basis points. Late last week that spread traded in the low 90s.
Mortgages closed 3/8 of a point tighter to swaps.
AAA CMBS which cratered last week rallied 100 basis points to 200 basis points today.
Corporate bonds
It was a very slow day in corporate bond land. There were no new issues. There was a lot of hoopla regarding the Goldman FDIC guaranteed deal. I have not seen anything in print regarding exact size or maturity. The FDIC guarantee does not extend beyond June 30, 2012, so that should be the outer limit for the maturity. I have heard in the Street that there is $4 billion dollars of interest in such a deal. At this point that detail is still to be determined. And the spread talk I discussed earlier ranges from flat to plus 20 basis points versus agencies. Ward of the state and former financial behemoth Citibank has chimed in that it, too, will bring one of these deals.
There were no new issues today.
The IG 11 is currently 252/256.
The Amex 5 year is retreating and is now 700/660. The GE 10 year is 390/370 and the Verizon Wireless 10 year is still underwater at 550/540. The issued priced at 5 1/8 percent above the benchmark 10 year.
