Bond Expert: Monday Wrap

Prices of Treasury coupon securities posted solid gains today with the chunkiest gains in the longest maturities.

The yield on the 2 year note declined just a basis point to 1.10 percent. The yield on the 3 year note declined 2 basis points to 1.60 percent. The yield on the 5 year note slipped 3 basis points to 2.52 percent. The yield on the 7 year note dropped 3 basis points to 3.17 percent. The yield on the 10 year note dropped 5 basis points to 3.48 percent. Line up quickly for the Long Bond as this is your last chance to buy it in the 4.30s as its yield fell 4 basis points to 4.30 percent.

The spread between the 2 year note and the 10 year note narrowed to 238 basis points.

The 2 year/5 year/30 year butterfly is 36 basis points.

The Treasury will announce on Thursday a new 10 year TIPS bond which will auction next week. Estimates are that they will offer between $8 billion and $10 billion of the issue. I note it because the breakeven inflation rate has collapsed . When the 10 year Treasury traded at 4 percent the breakeven spread was 205 basis points. It trades currently at 171 basis points.

Swaps, MBS and Vol

(3pm ET) Swap spreads are wider across the curve.Two year spreads are 2 1/4 basis points wider at 37 3/4. Three year spreads are 2 1/2 basis points wider at 48 1/2. Five year spreads are 1 1/4 basis points wider at 38 1/4. Seven year spreads are 1 1/2 basis points wider at 18 1/2. Ten year spreads are 2 1/4 basis points wider at 21 3/4. Thirty year spreads are less inverted by 2 1/2 basis points at NEGATIVE 16 3/4.

Someone emailed me about the range for thirty year spreads, and according to Bloomberg the range this year is -5 to -47.

Mortgages are 1 1/2 ticks wider to swaps.

Vol is still well bid and for those keeping score at home, the 3 month 10 year ATM straddle is 672 mid.

Volumes were very thin in this market, too. One participant reported that there had been a very chunky payor late Friday and the market suffered all day with the residue of that transaction.

Corporate bonds

Let me offer a story before I write on the corporate bond market.

I drove my wife to the airport this morning (JFK) as she is spending the week with the daughter and granddaughter. It is probably 20 miles to JFK from the global headquarters of Across the Curve, and the Southern State Parkway and the Belt Parkway are heavily trafficked thoroughfares. I thought that at the height of the rush hour in a worst case scenario that it might take an hour to get there.

There was no worst case outcome but a quite favorable outcome instead. It was about a 25 minute ride and I did most of it at 60 miles per hour.

Why am I recounting this? To make the point that a huge chunk of the working world is off today and that appears to be the case in the bond market. It will be a week of very light volume and thin trading.

Corporate bond spreads (cash) are virtually unchanged and the respite from narrowing spreads extends into another week. Expect that trend to be in place over the course of this week.

The highlight of the day is a French Telecom offering of $1 billion 5 year notes and $1 billion 10 year notes. I hear price talk of T+ 200 in each tranche.

One salesmen thought the deal was “fully priced ” at that level at expected little secondary market tightening.

He cited a Vodafone (VOD) 10 year from earlier in the month which priced at 195 and at best is 205/195 today.

Comments

[MarvinMBA:]

Rates seem to be all over the place in the new issue (whatever few offerings there are) and the secondary market also seems to be quite varied in what you can buy...therefore its important to do a job of looking at everything before investing in BBB or higher corporate bonds out to 7 years which is the max I'm willing to go now.

Jun 29 06:27 PM