Prices of Treasury coupon securities are posting small mixed changes on this day when the Treasury began the process of regurgitating $116 billion of securities via sales of 2 year notes, 5 year notes and 7 year notes.
In initial trading this morning the curve steepened rather sharply and 2 year/10 year reached a cycle high of 267 basis points. At that level buyers deemed the 10 year note attractive and as I pen this note the spread is 263 basis points.
In early trading sellers spanked the Long Bond and that issue has enjoyed a range of about one point.
The level of activity is on the modest side. Prior to the auction one prop trader noted that volume in the brokers market in the WI 2 year note was just $11 billion. He said that a normal level of activity would have between $15 billion and $20 billion of those securities trading.
The result today was rather lackluster. There was a very small tail which manifests that lack of liquidity which prevails in this holiday week. I think that each of the next two auctions will produce sloppy results as there is very little opportunity to easily exit positions.
The yield on the 2 year note is one basis point higher at 0.73 basis points. The yield on the 3 year note is a basis point higher at 1.26 percent. The yield on the 5 year note is unchanged at 2.17 percent. The yield on the 7 year note declined a basis point to 2.89 percent. The 10 year note is unchanged at 3.36 percent. The yield on the Long Bond is unchanged at 4.29 percent.
The 2 year/10 year spread is a basis point flatter at 263 basis points. That is actually a pretty good result on a day in which the taxpayers sell $ 44 billion of the issue.
The 10 year/30 year spread is unchanged at 93 basis points. I will go out on a limb and suggest buying 30s and selling bonds. In a quiet market with all the supply about to weigh down sentiment in the belly, the Long Bond should outperform the 10 year note. Mark the trade at 93 bps.
The 2 year/5 year/30 year spread is 68 basis points. I would sell the 5 year note against the wings as the supply should cheapen that issue versus 2s and 30s.