Prices of Treasury coupon securities have experienced severe hemorrhaging in overnight trading and have broken down to new lows in the process.
There does not appear to be a single story acting as the catalyst for the rout. Supply is the main factor as the sale of a new Long Bond today will mark the end of a two-week cycle in which the US Treasury auctioned over $170 billion in coupon securities. That is not exactly an odd lot.
The Treasury is regurgitating those securities in a period in which demand for risk averse assets is waning. I report here regularly on the firestorm of demand for corporate bonds. That demand is unabated.
Equity markets are also in rally mode and that continues overnight with major exchanges around the globe posting solid gains. News reports indicate that the ADP number yesterday cheered investors. The leaked stress tests is also a source of elation as reports are that most of the capital shortfalls are manageable.
Against that background Treasury bond prices got trounced overnight.
The yield on the 2 year note increased just 2 basis points to 0.99 percent. The yield on the 3 year note increased 5 basis points to 1.48 percent. The yield on the 5 year note climbed 6 basis points to 2.11 percent. The yield on the 10 year note increased 5 basis points to 3.23 percent and the yield on the 300 year bond vaulted 6 basis points to 4.16 percent.
The yield curve has steepened with the 2 year/10 year spread moving to 225 basis points. I have observed that spread as wide as 225 basis points this morning.
The 2 year/5 year/30 year spread is 93 basis points. Earlier this morning that spread touched 90 basis points. That level represents major support since that advent of QE in March.
There is some economic data today.
Today is Thursday so that brings the report on initial jobless claims. The consensus guess is 635K. In the last three weeks the average has been 630K. In the four weeks before that the average was 659K.
Green shoot? Or noise?
Q1 Productivity and Unit Labor Cost is available today, also.
Productivity should show a gain of 0.6 percent after falling 0.4 percent in the previous quarter.
Unit Labor costs probably rose 2.7 percent in Q1 following a 5.7 percent gain in the previous quarter.
Chairman Bernanke will speak today on Banking Supervision. That topic is apropos as later today will see the official release of the stress tests results.