Bond Expert Wednesday Wrap

Prices of Treasury coupon securities are posting small mixed changes today with the yield curve steepening for the 10 year note and the 30 year bond auction tomorrow.

The yield on the 2 year note declined 2 basis points to 0.92 percent. The yield on the 3 year note slipped 3 basis points to 1.49 percent. The yield on the 5 year note dropped 2 basis points to 2.37 percent. The yields on the 7 year note and the 10 year note are unchanged at 3.07 percent and 3.47 percent, chronologically. The yield on the Long Bond increased a basis point to 4.33 percent.

The 2 year/10 year spread is 255 basis points and the 10 year/30 year spread is 86 basis points. I do not have access to history but the 10 year / 30 year spread is as wide as it has been in quite some time. The range for that spread has been from the low 70s to the low 100s over the last several months.

There is a modicum of stability in the TIPS market today. Ten year breakevens are unchanged at 185. Thirty year spreads widened three more basis points to 214 basis points. One email which I received from a trader noted brisk buying in the belly of the TIPS curve.

The market initially traded heavy following the auction result but has firmed since.

Some cite the rollover in stocks from quite robust levels. Others point to the Beige Book and non threatening remarks from various Fed speakers.

Corporate bonds have survived the deluge of issuance from yesterday. The CVS 30 year is 190/85 versus a 188 pricing.

Spanish utility Iberdola issued $1 billion 5 year notes at 145 and $1 billion 10 year notes at 160. The issues are currently 142/137 and 155/150, respectively.

Comments

[UbaTuba]

Mad Hedge . . . but if the Market drops, won't people dash back to Treasuries in the short term, making the short a loser during that time? What to do?


On Sep 09 05:24 PM Mad Hedge Fund Trader wrote:

> ghk. ) It’s time to take another look at the short US Treasury bond
> ETF (seekingalpha.com/symbo...). I first recommended this
> 200% leveraged bet that long dated bonds were going down big time
> in January at $35, catching a near double to $60 (click here for
> report) at www.madhedgefundtrader....
> We have now retrenched back to $45, and it’s time to reload the boat.
> The US government has now committed to $9.1 trillion in debt issuance
> over the next ten years. Foreign governments will need to borrow
> as much to fund their own bail out/stimulus programs. Did I mention
> inflation? There is absolutely no way the ten year can maintain a
> 3.40% yield in the face of this onslaught. It is clear that zero
> short rates are driving investors, many of whom will only buy Treasuries,
> into making terrible investments. This is what the awesome bid to
> cover ratio of 3.2X for today’s three year auction is telling you.
> The dollar clearly sees this and is hitting a new one year low. It’s
> just a matter of time before bond investors put on their bifocals
> and see the locomotive that is about to run over them.

2009 Sep 09 07:14 PM

[LKofEnglish]

fed reserve stick save in the afternoon?

2009 Sep 09 10:24 PM

[acttang]

They can buy gold...


On Sep 09 07:14 PM UbaTuba wrote:

> Mad Hedge . . . but if the Market drops, won't people dash back to
> Treasuries in the short term, making the short a loser during that
> time? What to do?

2009 Sep 10 03:47 AM