Bond Expert: Thursday Wrap

Prices of Treasury coupon securities have surged today as a conjunction of diverse factors propelled prices higher. The Treasury successfully auctioned the final leg of the refunding auction with the sale of $6billion Long Bonds. The auction stopped about 2 basis points better than the pre-auction chatter and gave the market a bid for the rest of the session. There were also reports of large sellers of the US in favor of Bunds. Additionally, hedge funds and prop desks were sellers of MBS to buy Treasury paper.

The yield on the benchmark 2 year note has dropped by 8 basis points to a yield of 2.23 percent. The benchmark 5 year issue put in a stellar performance and was the issue to own today. The yield on the issue slid 10 basis points to 2.98 percent. The yield on the 10 year note has posted an 8 basis point decline to 3.79 percent and the yield on the Long Bond is lower by 5 basis points and rests at 4.55 percent. The 2 year 10 year spread differential is about unchanged at 156 basis points . It traded as wide as 159 basis points at one point.

MBS are closing 2 basis points wider to Treasuries. Hedge funds and prop desks responded to a rise in vol by selling positions which they owned for some time.At the widest levels of the day money managers bought 5s and 5 1/2s. There was some convexity hedging as the 5 1/2s traded near the 101 dollar price. Originators were active sellers with one dealer reporting that over $1billion had come in for the bid.

Economic data released today were mixed. Many large retailers reported their sales data for April and most posted solid rebounds over March. Pundits agree that the funky timing of Easter overstates April and understates March. So the numbers do not quell concerns which arise from the surge in the price of gasoline at the pump and the soft labor market.

Initial jobless claims spiked down to 365k from a revised 383K in the previous week.The 4 week moving average increased slightly to 367K from 364.5K. Continuing claims remained north of 3mm. Economists at JPMorgan point out that the claims numbers seemed centered around 375K and at that level are not indicating some imminent economic calamity.

Wholesale inventories dropped in March and the decline will probably shave something from Q1 GDP.

Have a great evening.