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Prices of Treasury coupon securities have posted modest gains today as the weakness in the equity market has kept the bond market well bid. There was a mini roller coaster ride in the long end of the market as the size of the buyback by the Open Market Desk failed to meet the expectations of some traders. Following the results of that operation the 30 year bond was down as much as 1/2 point on the day. Subsequently, the issue recovered to post a gain on the day.

The yield on the 2 year note slipped 6 basis points to 0.84 percent. The yield on the 3 year note fell 7 basis points to 1.19 percent. The yield on the 5 year note dropped 8 basis points to 1.72 percent. The yield on the 10 year note declined 5 basis points to 2.71 percent and the yield on the 30 year bond is lower by a basis point at 3.60 percent.

The 2 year/10 year spread is 187 basis points.

The 2 year/5 year/30 year spread moved to 100 basis points from 96 basis points this morning.

One Long Bond trader (and friend of the blog) expressed his ire at the Federal Reserve. He argues that the street is long off the run sectors and that if the Fed desires to benefit the market they would get the most bang for their buck by purchasing off the run bonds. It would break the logjam which remains.

Tomorrow brings the first batch of economic data for the week with home price data from Case-Shiller, as well as the Conference Board Consumer Confidence report and the Chicago area Purchasing Managers Index.

I am not sure what moves the market. Stocks are down nearly 4 percent and we are quite orderly.

Agency spreads

Agency spreads have tightened over the course of the afternoon on the back of the announcement that the Federal Reserve would purchase 2015 through 2017 sectors and assorted bonds in the long end.

Against that background, spreads in the 10 year sector are about 5 basis points tighter as participants front run the Federal Reserve purchase of bonds tomorrow. Five year spreads are unchanged and 2 year spreads are tighter by about 2 basis points.

Fannie Mae (OTCQB:FNMA) has a supply announcement scheduled for Wednesday. (Might there be a little irony in making that announcement on April Fool’s Day?) The street is expecting a 3 year issue.

Most of the excitement in the agency market today derived from the Fed announcement. The only other retail activity I could discern is some interest in the 2 year and 3 year sector from portfolios seeking the ride down the curve in the zero funds rate climate.

MBS and Swaps

The salesman with whom I spoke regarding these market sectors described the market as eerily quiet.

Swaps spreads are mixed with all sectors either unchanged or a tad tighter. The 2 year spread is unchanged at 54 1/2. The 5 year spread is 1/2 basis point tighter at 51 1/4. The 7 year spread is unchanged at 28 1/4. The 10 year spread is 1/2 basis point tighter at 18. The 30 year spread is 1 1/4 basis points tighter at NEGATIVE 32 3/4.

There has been a modest amount of receiving by bank portfolios in the 2 year and 3 year sectors and some rate locking in the belly of the curve.

Mortgages are about 1/32 wider to swaps.

Originators were sellers of 4s throughout the day and the Federal Reserve and money managers were better buyers.

Source: Bond Expert: Monday Wrap