Bond Expert: Thursday Wrap

Prices of Treasury coupon securities tumbled hard today as an exodus from Treasury paper into riskier assets weighed on sentiment. An ebullient stock market exercised similar power as did the heavy supply which the street will confront next week.

The yield on the 2 year note crossed above 1 percent again as it increased 10 basis points to 1.03 percent.The yield on the 3 year note climbed 12 basis points to 1.60 percent. The 5 year was the underachiever of that day as its yield soared 17 basis points to 2.56 percent. The yield on the 7 year note did not perform better as it jumped 16 basis points to 3.69 percent. The yield on the 10 year note climbed 15 basis points to 3.69 percent. The yield on the 30 year bond increased 13 basis points to 4.58 percent.

The 2 year/10 year spread increased 5 basis point to 266 basis points.

The 10 year/30 year spread narrowed a tad to 89 basis points.

Reflecting its status as the day’s worst performer the 5 year note underperformed the wings of the butterfly by about 12 basis points as it closed at 49 basis points.

The coupon supply announcement brought forward rolls in the Treasury market. The two year roll trades at 5 3/4 basis points. The 5 year roll trades around 4 basis points and the 7 year roll trades at 3 1/2 basis points.

Corporate bonds

As of 3pm ET: Corporate bond spreads are 5 basis points to 10 basis points tighter on the day. One salesman (and friend of the blog) notes that the tightening has ceased for the day because there are no more bonds around.

He cites the prospect that the funds rate will remain at zero for that famous “extended period” as the prime force behind the march to risk. Many investors missed the rally and it is now too painful to remain parked in an asset earning virtually zero.

That fact has led the yield hogs to quality investment grade paper. The ebullient stock market and better earnings have aided and abetted the trade.

Boeing (BA) launched its three pronged bond deal and increased the size. The firm is offering $750 million 5 year notes at T+ 110, $750 million 10 year notes at T+ 120 and $450 million 30 year bonds at T+ 145.

Bank of America (BAC) is offering $2.5 billion 7 year notes at T+ 330.

Comments

[whidbey:]

"An ebullient stock market exercised similar power as did the heavy supply which the street will confront next week."

Heavy supply is an understatement. Avalanche is more descriptive of what is planned, and not just next week, but for the foreseeable future. Have we become complacent in the face of our madness?
This is measure of what is to come, and soon the yields required will tear down the equities market.

Jul 23 09:58 PM