Bond Expert: Wednesday Wrap

Prices of Treasury coupon securities catapulted higher today as the very weak retail sales report as well as a renewal of credit concerns sparked a rush to buy Treasuries.

The yield on the 2 year note slipped 3 basis points to 0.71 basis points. The yield on the 3 year note dropped 6 basis points to 1.01 percent. The yield on the 5 year note tumbled 9 basis points to 1.35 percent. The yield on the 10 year also dropped 9 basis points and it rests at 2.20 percent. The Long Bond was the star along the yield curve as its yield plummeted 13 basis points to 2.88 percent.

The 2 year/10 year spread narrowed 6 basis points to 149 basis points.

The 2 year/5 year /30 year spread closed the day at 89 basis points.

Anomalies and inefficiencies are still abounding along the Treasury yield curve. As an example one can sell the 4 ¼ 11/2014 and extend just three months into the robust 11 ¼ 2/15/15 and pick up 58 basis points.

If one travels out the curve to the 10 year sector, an investor can sell the current 10 year and buy the August 2019 bond for close to 60 basis points.

Swap spreads have rebounded from the widest levels of the day which had been reached earlier. The 2 year spread is wider by 2 basis points at 54 ¼. Five year spreads are tighter by ½ basis points at 55 ¼. Ten year spreads are tighter by 2 ½ at 14 . Bond spreads are tighter by 1 basis point at NEGATIVE 23 ¾ basis points.

The improvement in spreads late in the day resulted from swapping of corporate issuance.

One correspondent noted that 88.90 was a key level on dollar yen and believes that strengthening of dollar yen beyond that level would bring a new wave of receiving in the 30 year sector.

Mortgages are about 8 basis points wider to swaps.

Corporate bonds

The new issue corporate calendar is on the active side today as it has been the last several days. Pepsi Bottling (PBG) is offering $300 million 10 year notes at T + 300 which is virtually no concession to outstanding paper.

Campbell Soup (CPB) offered and priced $300 million 10 year at 2 3/8 over the 10 year. The original price guidance was +270 but huge demand emerged and they priced it significantly tighter. The company had promised that it would not grow the deal and with that there was interest for as much as $ 4billion of this reasonably pristine name.

Comments

[John Lounsbury:]

John Jansen - - -

I appreciate the analysis you do on bonds. Thanks.

I sold my TBT positions this morning fearing a possible return flight to safety if the stock market deteriorates further.

Jan 15 12:11 AM