Bond Expert: Wednesday Wrap

Prices of Treasury coupon securities slumped today in a volatile trading session in which the auction of 5 year notes by the Treasury and the statement by the FOMC at the conclusion of its conclave dominated.

As I discussed earlier, the 5 year note auction was well received and stopped through the market. In the hour between the announcement result and the FOMC statement, the Treasury market traded higher in price, and sat at the highs of the day as the FOMC spoke. The 10 year note attained a low yield of 3.57 percent just prior to the Fed statement.

The statement generated some disappointment as many anticipated some clarification on QE, and the market sold off. In my mind the sell-off relates more to the auction cycle as there has not been much of a set-up for the 7 year note auction of tomorrow. With the FOMC out of the way, traders felt liberated and proceeded to assault the Treasury and the taxpayer in advance of the bidding tomorrow.

The first two auctions went well and we are due for a clunker. I would look for the set-up for the auction to continue until the moment of the bidding deadline tomorrow at 100PM.

The yield on the 2 year note has increased 4 basis points to 1.20 percent. The yield on the 3 year note has increased 5 basis points to 1.76 percent. The yield on the 5 year note has increased 3 basis points to 2.70 percent. The yield on the 7 year note climbed 6 basis points to 3.35 percent. The yield on the 10 year note jumped 7 basis points to 3.69 percent and the yield on the Long Bond soared 8 basis points to 4.44 percent.

The 2 year/10 year spread widened 3 basis points to 249 basis points.

The 2 year/5 year/30 year spread (using the new 5 year note) is about 16 basis points.

Several salespersons reported some central bank activity today. One observed central bank sellers of off the run 10 year paper and the simultaneous purchase of Long Bonds. Another observed outright buyers of 10 year notes by central banks and some by leveraged clients.

Separately, Time Warner Cable (TWC) priced $1.5 billion 30 year bonds at a spread of T+ 260.

Comments

[LKofScotland:]

TWC at +260? Sounds pretty good. Maybe my internet access is about to get cheaper.

Jun 24 04:21 PM

[Screwloose:]

68% indirect on the 5-yr auction...

Hmmmm...?

Jun 24 04:52 PM

[PCScipio:]

Gotta look at the redifinition of indirect!

Jun 24 06:17 PM

[Screwloose:]

Does it involve the words "back" and "scratch?"

Jun 24 06:58 PM

[whidbey:]

More of the same, no change in the paper hanging binge. The sales to banks seems reasonable that is what indirect is understood to mean: a covering action. The collusion to commit fraud would be indictable in a civil matter.

The long and the short is, the Fed has no idea of how to keep the yield curve in control (and housing afloat), yet stimulate the employment capable firms hire. It is employment that matters and they have not got a clue yet.

Jun 24 08:36 PM

[Hurricane:]

A video of an interview by the Financial Times noted that the significantly lower demand from the private sector for loans/debt issuance means that there is no "crowding out" effect. How much does this impact the government auctions? Doesn't it give Bernake some "breathing room" on QE and some flexibility when he "removes the punch bowl:?

Jun 25 03:25 PM