Bond Expert: Tuesday Wrap

 |  Includes: IEF, IEI, SHY, TIP, TLH, TLT
by: John Jansen

Administrative Note: I am writing this note about an hour or more earlier than usual because I have personal business to attend to this afternoon. As I begin it is 2:02PM on the South Shore of Long Island.

Prices of Treasury coupon securities are tumbling once again today as a variety of factors conspire to punch yields higher.

Early in the day the economic data dismayed the bond bulls as retail sales jumped more than expected and the New York Fed Empire survey climbed more than pundits had prognosticated.

That drove the 10 year note nearly to 3.5 percent (3.485 actually according to one salesman) and in front of 3.50 percent buyers emerged. The market edged back into the mid 3.40s but faded as Bernanke pronounced the recession “technically” over and stocks jumped higher.

The Open Market Desk did engage in a buyback today and purchased $2 billion 0f 2020 through 2026 bonds.

The Desk has just about completed its mission of buying back $300 billion Treasuries. I picked up rumblings today from some traders who wonder who or what will replace the regular Federal Reserve purchases. I had picked up similar ruminations from mortgage market participants yesterday.

Later this week supply will raise its ugly head as the Treasury will announce the monthly ration of 2 year, 5 year and 7 year notes. Expect a package of between $110 billion and $115 billion. One analyst with whom I just conversed anticipates $44 billion 2 year notes, $40 billion 5 year notes and $29 billion 7 year notes for a total of $113 billion.

The yield on the year note has increased 2 basis points to 0.94 percent. The yield on the 3 year note climbed 2 basis points also to 1.50 percent. The yield on the 5 year note increased 3 basis points to 2.40 percent. The yield on the 7 year note soared 5 basis points to 3.07 percent. The yield on the 10 year note increased 4 basis points to 3.46 percent. The yield on the Long Bond increased 3 basis points to 4.25 percent.

The belly of the curve is receiving a spanking. The 2 year/5 year /30 year spread began the day at 44 basis points. It is currently 39 basis points.

The 2 year/10 year spread is wider by 2 basis points at 252 basis points.

The 10 year /30 year spread is a basis point tighter at 81 basis points.

That redounds to the benefit of TIPS.

Ten year TIPS began the day at 180 basis points and I last observed them at 186 basis points.

Thirty year TIPS opened the day at 206 basis points and currently rest at 209 basis points.