Bond Expert: Monday Wrap

Includes: BIV, IEI, TLO
by: John Jansen

Prices of Treasury coupons are finishing the day with just marginal changes and most of the benchmark securities are virtually unchanged. The 3 year note auction produced a superior result but it is languishing in secondary market trading. There has been very little follow through buying and dealers who missed the auction do not feel impelled to chase bonds with the 10 year tomorrow and the 30 year on Thursday.

I did hear of a reasonable amount of customer activity and active trading. Salesmen reported Asian central bank buying of the three year sector as well as the same group buying in the seven year bucket. Another salesman reported central bank selling of off the run 5 year paper. He assumed that money would park itself in the new 3 year note but averred that he had no direct knowledge of that process.

Separately another salesman reported better buying of three year sector by domestic money managers.

The yield on the 2 year note increased a basis point to 0.84 percent. The yield on the 3 year note is unchanged at 1.36 percent. The yield on the 5 year note is also unchanged at 2.29 percent. The yield on the 7 year note edged lower by a basis point to 3 percent. The yield on the 10 year note also slipped a basis point to 3.48 percent. The yield on the Long Bond is unchanged at 4.39 percent.

One person I spoke with suggested that the steepness of the curve results from the heavy dose of supply in the long end and the realization that the central bank is not (oh my God) monetizing the debt any more. By the way the central bank creates bank reserves when it orders shrimp for its executive dining room or buys a dozen pencils. I digress. The fact is that there is a record level of issuance and one large buyer has taken to the hills.

The 2 year/10 year spread is 2 basis points narrower at 263 basis points.

The 10 year/30 year spread is a basis point wider at 91 basis points.

The 2 year/5 year/30 year butterfly is 66 basis points.

This all is as of 3:13pm ET. I have personal stuff to attend to so enjoy the rest of the day.