Prices of Treasury coupon securities are virtually unchanged in overnight trading. The yield on the 2 year note dipped a basis point to 0.87 percent. The yield on the 3 year note edged lower by a basis point, also, and rests at 1.35 percent. The other benchmark securities which I so assiduously follow here are unchanged in price. The yield on the 5 year note is 2.10 percent while the 10 year yields 3.24 percent. The yield on the Long Bond is 4.21 percent.
The 2 year/10 year spread is 237 basis points which equals the wides that spread reached during the refunding process earlier this month.
The 2 year/5 year/30 year butterfly is unchanged at 88 basis points.
The high point of the day will be the 200PM release of the minutes of the last FOMC meeting.
At that meeting the FOMC disappointed bond market participants by failing to increase the size of its program to purchase Treasury securities. I think that any discussions which the Committee had on the topic will focus on the credit markets.
The Fed has always connected its purchase of Treasury paper to conditions in the credit markets and has never endorsed a specific interest rate target at any point along the yield curve (other than the funds rate). So I think that the discussion which we will observe will focus on the improvement in the credit markets and in risk taking appetites in general. I think that the general improvement in credit markets and credit conditions will have been the reason for the Fed’s failure to step up purchases of Treasury paper.
The Committee will also issue its quarterly compendium of forecasts for GDP, unemployment and PCE. At the January meeting the members had a central tendency forecast for 2009 GDP of -0.5 tp -1.3. That seems a bit too optimistic and I think that will be revised slightly lower.
The collective forecast on the unemployment rate for 2009 is clearly in error and will be revised lower, too. The last time the members spoke on the topic they opined that the unemployment rate would average between 8.5 and 8.8 in 2009.
Events in the real world will have forced them back to the drawing board on that one. I believe the last batch of labor data showed the rate at 8.9 percent.
In a piece I wrote earlier this week I opined that the members might have taken some time to discuss the means by which they will someday unwind the massive liquidity provisions which they have injected into the financial system over the last two years. On further reflection I think it is too soon for them to have had that discussion of that topic (publicly) and any indication that they are discussing that topic would send the bond market into an apoplectic state.
Japanese GDP fell 4 percent in Q1 and when annualized the rate of decline is a rather stunning 15 percent. Whither the green shoots there (no pun intended)?
Selected corporate bond quotes:
- JPM (JPM) 5 year 257/252. The issue had traded as tight at 247 yesterday.
- GE (GE) 5 year 353/348. That is slightly tighter than the 355/350 market I noted yesterday.
- Citibank (C) 5 year is 510/505 and that was 515/510 yesterday.
Libor
Three month Libor on its way to zero as it set .03625 basis points lower at 0.71625. 12 month Libor is lower by .03375 basis points at 1.54875.
Buybacks Today
The Open Market Desk will intervene in the interest rate market twice today. It will purchase Treasuries which mature between February 2016 and May 2019. It will also wave in agency debt which matures between May 2013 and October 2015.
