Bond Expert: Friday Wrap

Prices of Treasury coupon securities plunged of a cliff today in a rout across the curve. The decimation of the wealth stored in US Treasury debt, once viewed as the safest of all venues, resulted from the reports that the US government was planning to bail out FNMA (FNM) and Freddie Mac (FRE). This prompted a flight from the US Treasury assets into all sorts of paper. It was a vote of no confidence  as Treasury paper underperformed all other asset classes.

I am writing this a little early today so these closing levels may not hold as equities have recovered on news that Bernanke has said he will open the Discount window to the GSEs . That should not be a surprise. (As an aside, I want to take my wife into Manhattan for dinner and a show this weekend. Do you think he might flip me a couple of C notes if I make polite entreaty?)

So the yield on the 2 year note has climbed by 19 basis points to 2.60 percent. The yield on the 5 year note has moved in lock step with the 2 year note as it catapulted 19 basis points to 3.27 percent. The yield on the benchmark 10 year note took a hefty 14 basis point jump to 3.94 percent and the yield on the Long Bond climbed 10 basis points to 4.52 percent.

The 2year/10year spread has flattened 5 basis points to 134 basis points.

The 2year/5year/30 year butterfly has moved in to 58 from 65 basis points at the close. Remember that spread is very directional and if the market continues to sink this belly will become distended!

Swap spreads are tighter by 6 basis points in the 2 year sector and 5 basis points in the 5 year sector. The spread on 10 year swaps has tightened by 4 basis points.

Mortgage spreads are tighter to Treasury debt by about 5 basis points.

Agency spreads are tighter by 10 basis points in the 2 year sector, 20 basis points in the 5 year sector and by 15 basis points in the 10 year sector.

Have a great weekend.

Comments

[User 118015]

The yield on on the Treasury bonds and notes are far below the inflation rate plus 3% so it costs the investor to finance the government via the treasury. Perhaps investors will wake up some day and realize that Uncle Sam is extracting a price from you or letting you hold onto Treasuries. There is a negative real return investing with USam...why do it???? Keeping your money in the mattress is safer...at least you lose less.

[jswede]

you 'lose less' by 'keeping your money in the mattress' ??

Your mattress returns more than USTs, is that right? u r smart.

There really should be a short quiz before you can post here.

[Ames Tiedeman]

Why U.S. Governmnet bond yields are staying this low is a joke. When does the price of a U.S. Bond collapse under the weight of inflation?

[zooey]

Why not say more about the decisions involved? The decision to rescue the GSE has NOT happen yet, and maybe never will. The dollars problem is what Congress is threatening to do with a housing bill, and of course, Sen. Shumer's unfortunate attack on IndeyMac just underscores the fact that Congress is the bull in a China shop. What with no awareness of the rack and ruin of the lack of an energy policy, which is slowly bankrupting the US economy, we have to understand that the decline is only starting. Buy gold and silver and abandon hope all ye to live here.