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As of 2:37 pm ET, markets are very thin and very illiquid. Participants are looking ahead to Christmas and New Year’s and year end. The snow in New York also has contributed to the light trading.

Bond prices are lower across the curve but most of that stems from the violence of the recent rally and the inclination of some players to take some profits. Recall that the 10 year note in the refunding in November came at a yield of 3.78 percent and trades currently at 2.10 percent. In order to attract new buyers at current levels we will need fresh evidence of economic deterioration. Without that evidence prices will be bit toppy, I think.

In my absence yesterday the Treasury announced $38 billion 2year notes and $28 billion 5 year notes which investors will bid for next week. That will be a tough sale as the amount for sale is quite large and in a thin market the auctions should prove quite troublesome. I would expect that each of the offerings come at step concessions to the market. The fact is that the 2 year note will be the first to have a zero handle.

Mortgages are finishing the day 5 basis points to 6 basis points tighter to swaps. There was some real money and origination selling early but slightly wider spreads promoted buying by money managers and banks.

Corporate bonds in the secondary market are about a nickel tighter today. The feeding frenzy of the last several days is not evident but the tone remains firm and buyers are swamping sellers. When paper trades it trades on the offered side.

There has been robust demand for quality industrial names as well as utility names. Some intrepid souls have trafficked in out of favor financial names.The conventional wisdom holds that the FOMC move to hold the funds rate at zero for a protracted period of time will force buyers into spread product. That trade should continue for some time.

Source: Bond Expert: Friday Wrap