Prices of Treasury coupon securities have sagged in overnight trading as the rebound in the stock market and anticipation of supply weigh on sentiment. The yield on the 2 year note has edged higher by 3 basis points to 0.99 percent. The yield on the 3 year note has worked its way 5 basis points higher at 1.41 percent. The yield on the 5 year note has surged 6 basis points to 1.94 percent. The yield on the 10 year note jumped 7 basis points to 2.93 percent and the yield on the 30 year bond also jumped 7 basis points and rests at 3.64 percent.
The 2 year/10 year spread is 194 basis points.
The 2 year/5 year/30 year spread has narrowed to 75 basis points from 77 basis points late yesterday.
The highlight of the trading session today will be the 3 year note auction. The US Treasury is immersing the street in $34 billion new bonds. The issue has cheapened on the curve overnight in anticipation of the bidding process. It has cheapened 2 basis points to the 2 year note at +42 basis points and on the 2 year/3 year/5 year it has also cheapened 2 basis points to 11 basis points rich to the wings. With the roll into the WI issue the butterfly is approaching zero, a level which would produce substantial arb interest.
This issue should go well as it is the first in an unholy trinity of issuance this week. The street can buy this one and gauge interest in the market. If there appears to be a buyers' strike then the quick and easy alternative is to then sell 10s and 30s versus the 3 year position.
Analysts at Greenwich Capital raise two pertinent negative points in their morning note to clients. There is plenty of competition out there for this issue as there was a plethora of FDIC guaranteed issuance yesterday.
Additionally, the same analysts note that the JPMorgan weekly client survey is as long as it has been since January 2002 (when oh my God I still worked there) and theoretically that should diminish demand.
Federal Reserve Chairman Bernanke will speak before the very august Council of Foreign Relations today. ( I imagine high ceilings, and dark panels on the walls.) Chairman Bernanke will address the topic of Financial Reform and Systemic Risk.
The IG 11 is opening 3 basis points tighter at 258 1/2 /260 1/2.
Bloomberg is running a story about Mexican cement maker Cemex (NYSE:CX). They called their bankers about a $ 14 billion matter. The matter is that they can not make timely payments and they need a fix.
Gilt auction: The UK sold 3 billion pounds of 10 year gilts today. In anticipation of government purchases tomorrow, bonds have rallied significantly the last few days. That rally damped interest in the auction and the result produced a 1.8 basis point tail as well as a market which retreated after the result announcement.