Bond Expert: Friday Wrap

Prices of Treasury coupon securities plummeted today as the apparent agreement by the Administration and the Congress fostered a flight from Treasury debt to other asset classes. In one day the deepest fear to grip the markets since the Great Depression retreated.The yield on the benchmark 2 year note increased 42 basis points to 2.12 percent. The yield on the 5 year note jumped 36 basis points to 2.98 percent. The yield on the benchmark 10 year note soared 21 basis points to 3.75 percent and the yield on the Long Bond moved higher by 17 basis points.

The 2 year/10 year spread narrowed by 21 basis points to close the day at 154 basis points.

The 2 year/5 year/30 year butterfly closed at 52 basis points. It closed yesterday at 62 basis points and traded midday yesterday at 74 basis points. For the uninitiated this means that the 5 year note received a clubbing relative to the 2 year note and the 30 year bond.

Swap spreads tightened dramatically in the front end of the curve. Two year spreads tightened 24 basis points. Five year spreads tightened 10 basis points. The spread tightening was less pronounced in the longer maturities. Ten year spreads tightened 3 basis points and 30 year spreads narrowed about ½ basis point.

Mortgages tightened tremendously to swaps. FNMA 5s outperformed swaps by about 1 ½ points.

Agency spreads tightened by 17 basis points in the 2 year sector, 10 basis points in the 5 year sector, and 6 basis points in the 10 year sector.

The star of the day was the 10 year TIPS bond which out performed the 10 year note by about 35 basis points. The breakeven spread moved to 195 basis from about 160 yesterday.

Comments

[montag:]

Ummm? ~I think the uninitiated after looking up the definition of 'clubbing' would still desire more insight. What does all this mean? Your post is like reading an excel spread sheet or a stock table. What is your interpretation? Share some of your professional insight with us...not just the facts. I would enjoy reading your analysis of all of this.



Thank you

2008 Sep 20 04:17 AM

[Jerbear:]

Interesting but what would you recommend? But you probably want me to pay you for that advice.

Seeking Alpha has turned into an advertising medium for financial adviser.

2008 Sep 20 11:15 AM

[Macro:]

It is quite obvious no? The Fed has finally thrown all their moral 'cojones' overboard and is now busy printing, printing and printing dollars to bail the banks out. Essentially the same story which was repeated the whole week. The difference THIS time however was that FINALLY the Treasury bondholders realised that they will be the guys being shafted by the U.S government. Hold on to your hats. The next few months will not be pleasant for Treasury bondholders or USD denominated assets in general. Note how the gold and silver markets behaved during the afternoon yesterday. After an initial steep sell off in the atmosphere of 'all clear, the cavalry has arrived", they recovered sharply in the afternoon. I expect gold and silver to literally skyrocket over the next few weeks.

2008 Sep 20 12:13 PM

[whidbey:]

The near panic in bonds reflects the fear of federal policy movements. It is very restrained right now, but expect some shocking interest rate increases. Bond investors can see that easing is endemic worldwide, and they know if the fed needs 700 Billion the rates must be low. Very soon hyperinflation will be obvious as the fiat currencies fold into history and the metals become the defacto standard for transactions. The end of the dollar is near. I lke the Swiss currency (FSF) and gold as you might expect. Dollar at 40 eventually.

2008 Sep 20 02:03 PM

[adan:]

re: "...The star of the day was the 10 year TIPS bond...."

unfortunately, who's to trust anything about buying or holding our (taxpayers) govt debt now?

2008 Sep 20 02:04 PM

[Stewart Gordon:]

Someone who compared this to an Excel spread sheet said it all - unless it is interpreted and still worth explaining, it shouldn't be accepted - this is gobbledygook to most of us at least as to the intelligent nuances and intuitive implications the writer wishes to convey.

2008 Sep 20 10:13 PM