Prices of Treasury coupon securities slumped in the short maturities and plummeted in the longer maturities today. The penurious US Treasury began a three day period in which it will dun the market for some $ 63 billion via the issuance of 3 year,10 year and 30 year bonds this week. The issuance occurred while the stock market enjoyed its biggest bounce (think moribund feline) in many months and set the stage for additional improvement in the days ahead. That the market could rally as dramatically as it did on the slender reed(John Reid?) of an internal memo at Citibank intimating a return to profitability is a sign that the equity market is deeply oversold.
The yield on the 2 year note climbed 5 basis points to 1 percent. The yield on the 3 year note surged 7 basis points to 1.43 percent. The yield on the 5 year note jumped 11 basis points to 1.99 percent. The yield on the 7 year note is 2.63 percent. The yield on the 10 year note vaulted 13 basis points to 2.99 percent. The yield on the 30 year bond vaulted 14 basis points to 3.71 percent.
The three year auction went well with a tail of .5 basis point and slightly larger indirect bid total of 40 percent. The auction average was 1.488 and a few minutes ago was 1.473 bid as the yield declined 1.5 basis points. At auction time the dollar price on the 10 year note was 98-1 and now it is 97-30. Similarly , the price of the Long Bond declined 1/4 point while the new 3 year note edged lower in yield.
The 2 year/10 year spread had widened 8 basis points to 199 basis points.
The 2year/5year/30 year spread narrowed to 73 basis points.
Late in the day I think there was some selling associated with the Halliburton transaction and that weighed on sentiment in the long end.
I did hear of quite a bit more flow than usual today. There were bank buyers of 5 years. Real money bought bills. Central banks sold 10s in favor of 4s. Specs bought 3 years versus 5 years. Speculators were sellers of 10s and 30s
Corporate Bond Market
The IG 11 is inside of 250 at 248/250. The healthy bounce on the equity markets has produced some robust spread tightening and the aforementioned index is about 15 tighter.
New issues were the flavor of the day.
CVS Caremark (CVS) was offering $1billion 10 years and I heard price talk in the 375 area which one participant alleges is about 50 basis points cheap.
Boeing (BA) offered $500 million 30 years (T+ 3 3/8 talk), $650 million 10 years (3 1/4 to 3 38 talk) and $700 million 5 years ( 3 1/8 to 3 1/4) . Each is about 80 basis points cheap.
Halliburton (HAL) was offering $1billion 30 years (+375) and $1billion 10 years (+320). The issues are deemed 75 basis points and 50 basis points, respectively.
I think the corporate bond market is still fractured. It is not as dysfunctional as it was in October and November but the realization that solid, well-established companies need to provide as much of a concession as these entities are here is a sign that there is a very long road to travel before the corporate bond market functions with a degree of normality.
Agency Spreads
Agency spreads are unchanged in the 2 year sector and also in the 10 year sector. Five year spreads narrowed 1 1/2 basis points.
I have not heard a good answer regarding the Fed’s decision to add long paper to its agency pile. One trader noted that they sort of load up on 1 year paper. If it is one’s intention to drive mortgage rates lower, you are not getting a lot of bang for your high powered fractional reserve system dollars by lollygagging around the front end of the yield curve.The money has at least a small chance of driving mortgage rates lower if it is spent in the long end of the market.
