Bond Expert: Monday Wrap

Prices of Treasury coupon securities registered bifurcated results today with shorter maturities posting price declines and the Long Bond gaining on the day. The Long Bond benefited from machinations surrounding the Cisco (CSCO) deal which included $2 billion 30 year bonds.

The yield on the 2 year note traded three basis points higher today and closed above 1.00 percent at 1.03 percent. Tomorrow the Treasury will sprinkle $32 billion 3 year notes on the street and its yield rose 4 basis points today to 1.46 percent. The yield on the 5 year note edged higher by 2 basis points to 1.99 percent. The yield on the 10 year note climbed 2 basis points to 3.01 percent. The yield on the 30 year bond slipped one basis point lower to 3.68 percent.

The 2 year/10 year spread narrowed 2 basis points to 198.

The 2 year/5 year/30 year narrowed 3 basis points to 73 basis points.

Tomorrow the Treasury will begin the refunding exercise. At the moment it is difficult to forecast the outcome of that auction. There is an Obama news conference this evening and tomorrow the Treasury will release the latest iteration of a bank rescue plan. Additionally, Mr Geithner and Mr Bernanke are each expected to testify before the Congress on topics germane to pricing the 3-year note.

All other things being equal, I think the auction of 3-year notes will go quite well. It is the first in line this week and a very simple and frequently employed strategy for the street is to use it as an anchor against the succeeding auctions. If retail does not participate you just sell the next bond that the Treasury will sell and cover your short in the auction

When the 10 year auction is complete and covered, dealers can attack the 30 year and attempt to buy it on the cheap. I expect that the dealers will bide their time rolling shorts out the curve and profiting as the yield curve steepens for the process

Corporate bonds

There was quite a bit of corporate issuance today and I spoke of some of it earlier. I am not sure which of this stuff has been priced and which has been launched but it is all out there being worked. I have spread levels and sizes which I did not have on my earlier posting.

Cisco has $2billion 10 years and $2 billion 30 years in process. The price talk is + 200 and + 225, respectively.

Unilever (UL) is offering $750 million 5 years and $750 million 10 years. Spread talk is +170 and + 180, respectively.

Pepsi (PEP) is offering $350 million 5 years at + 250.

McKesson (MCK) is showing $350 million 5 years and $350 million 10 year at +450 on each tranche.

Sealed Air (SEE) did $300 million 5 years with a 12 percent coupon. Supposedly, the oracle of Omaha took half of that deal. I had not heard this until today but he also took one half of $600 million Harley Davidson deal last week. It was a 5 year deal with a robust 15 percent coupon.

The secondary market is still firm and trading on the offered side.