Prices of Treasury coupon securities are slumping badly today as supply in other markets, fear of prospective Treasury supply and a rebounding appetite for risk products reduces the allure of Treasury debt.
JPMorgan priced $3 billion of a new 10 year note at T+ 350 basis points. That was about 55 basis points cheap to comparable JPM paper. That issue pressured Treasuries as the cheapness of the issue argued for clients to sell other corporate bonds in favor of the JPM issue.
Traders who bought the secondary paper hedged and that hedging weighed on the market.
The issue is 340/337 in the so-called gray market. I had earlier observed a 338/334 quote.
And for the record, the corporate market is still quite firm with secondary paper about 5 basis points tighter on the day.
Regarding the prospective Treasury supply Market News International ran a story that the Treasury and the Fed was discussing with dealers the prospect of issuing a monthly bond. Currently the bond is issued eight times each year.
At the announcement of the February refunding when the Treasury began the current process of selling the bond eight times per year, the debt managers proclaimed that they might revisit the idea of monthly Long Bonds in May. It is nearly May and I guess they are seriously considering the idea.
The bond has recently been a laggard and I suppose that the prospect of a monthly auction would cause it to trade poorly. The 10 year/30 year spread has quickly moved from the low 80s to close to 90.
The 2 year/5 year/30 year spread which I regularly tout here has rapidly moved from the low 90s to 105-ish. I think the movement in each spread reflects weakness in the bond rather than strength in the belly.
Finally, animal spirits are racing and hot blood is coursing through the veins of investors. Stocks are making new highs for this move. Corporate spreads move tighter each day. One trader with whom I speak noted that he had observed buyers of esoteric zero coupon product such as Refcorp and IADB paper. Less than two months ago there was no one making inquiry for that stuff.
The bottom line is that the interest in other product has sapped some energy from the Treasury market and if it continues will make for some rather sticky wickets.
The yield on the 2 year note has jumped 5 basis points to 0.90 percent. The yield on the 3 year note has climbed 6 basis points to 1.27 percent. The yield on the 5 year note has surged 8 basis points to 1.78 percent. The yield on the 10 year note has increased 7 basis points to 2.4 percent. The yield on the Long Bond rose 6 basis points to 3.72 percent.
Swap spreads are mixed. Two year spreads are 2 1/4 basis points wider at 57 1/2. Three year spreads are wider by 1 3/4 basis points at 54 1/2. One noted that investors were buying assets and paying in swaps against them in the short end.
Five year spreads are tighter by a basis point at 57. Ten year spreads are 1 1/4 basis points narrower at 15. Thirty year spreads are 1/2 basis point more inverted at NEGATIVE 35 1/2.
Mortgages are lagging swaps by about 4 ticks as some chunky origination selling has emerged late in the day.