Bond Expert: Wednesday Wrap

Prices of Treasury coupon securities are registering small gains today. The front end gained the most and the maturities are closing well off their best levels of the day.

The yield on the 2 year note has declined 3 basis points to 1.15 percent. The yield on the 3 year note dropped basis points also to 1.75 percent. The yield on the 5 year note edged lower by 2 basis points to 2.65 percent.The yield on the longer benchmark issues at 7 year,10 year and 30 year declined by a basis point to 3.30 percent, 3.65 percent and 4.47 percent, respectively.

The yield curve has manifested a propensity to steepen today. The 2 year/10 year spread is 250 basis points. Intraday it reached 244 basis points (nearly) and that level brought unwinding flatteners as well as some initiating steepeners.

The shorter maturities also benefited from the Bloomberg story I linked earlier today to which described conversations at the Federal Reserve regarding the best way to convey the message that rates would not be raised soon.

One participant mentioned comments from Paul McCulley from Pimco in which he said that the Federal Reserve would not raise rates until 2011.

The 2 year/5 year/30 year spread is 32 basis points. It closed yesterday at 36 basis points.

As I have mentioned several times the Treasury will announce $101 billion of new 2 year notes 5 year notes and 7 year notes tomorrow. I have seen estimates on the forward rolls and the estimates are generally around 5 basis points.

There has been an interesting activity by central banks. There has been a raft of issuance of paper guaranteed by foreign governments which has lured central banks to sell Freddie Mac (FRE) and FNMA (FNM) paper in favor of these new issues. The Japan Finance Company brought a deal in the year sector which priced 91 basis points cheap to the 2 year Treasury. It is full faith and credit of Japan.

Similarly, an entity called SwedBank priced 3 1/2 year deal at swaps + 45 which is about 90 over Treasuries.The deal is full faith and credit of Sweden.

Central Banks have been selling a smörgåsbord of agencies to buy these issues.

Comments

[Macro_Man:]

Took profits on all my TLT calls and TBT puts today. If 30yr goes up 10 to 15bps (dont think it will) will reestablish long TLT positions.

Wanted to ask you a question regarding Across the Curve, subscription or something like that. What is the best way to contact you.

Jun 17 05:10 PM

[Tony Petroski:]

How do you get those little squirrels above the letters on smorgasbord?

Jun 18 12:37 AM

[Sovestor:]

Bonds will get killed when inflation starts to kick in. Keep it simple.

Jun 18 03:28 AM

[John Jansen:]

Tony,

I type it on WordPress and that came from the spell check.

Jun 18 06:26 AM

[LKofScotland:]

foreign governments are rational actors after all! why subsidize american home owners when you can go on your own massive spending binge. i still think our military is too small by a factor of at least 100 if not 1000 to deal with the blowback from this insanity.

Jun 18 02:11 PM