Bond Expert: Friday Wrap

The Treasury bond market is closed Monday for the Columbus Day holiday. Following a longstanding practice the Treasury market will close at 200PM today.

Prices of Treasury coupon securities are closing lower today at the end of one of the most tumultuous weeks in financial markets history. The yield on the benchmark 2 year note has climbed 5 basis points to 1.59 percent. The yield on the 5 year note has jumped 7 basis points to 2.74 percent. The yield on the 10 year note has also increased by 7 basis points to 3.85 percent. The yield on the Long Bond has climbed three basis points to 4.13 percent.

The yield curve continues to steepen as investors crave liquidity and safety. The 2 year/10 year spread has moved out to 226 basis points.

The belly of the bond curve received a body blow this week as the Treasury regurgitated securities in the 6 year sector. The 2 year/5 year /30 year butterfly which I discuss regularly is trading at 14 basis points. Earlier in the week it traded at 56 basis points. That means the 5 year note has underperformed its yield curve cousins at the 2 year point and the 30 year point by 42 basis points.

Swap spreads are wider by 3 basis points in the 2 year sector. In other sectors of the curve spreads have actually narrowed. Five year sector spreads are tighter by a basis point and 10 year spreads are tighter by 3 ¾ basis points. Long Bond spreads are also tighter by 3 ¾ basis points.

The improvement in swap spreads in the longer dates resulted from chunky receiving by mortgage servicers who needed duration.

The IG 11 finished the day 216/222. The 10 year GE bond which I spoke of yesterday and this morning provides a glimmer of hope. This morning it was at a loss relative to pricing levels but at the end of the day the issue was quoted 385/375. The pricing level yesterday was 388.

Market participants will spend the weekend licking their wounds and waiting to see if the G7 establishment can change the course of financial history. Tolstoy would regard the “great men” with disdain and would deride the notion that they could influence events.

Let’s hope that the famous Russian gets this one wrong!

Comments

[whidbey:]

My clients who hold millions in GMNAs were slaughtered to say the very least; and the whole of the retirement community bond portfolio took a .34% loss. This group has suffered losses in all parts of the yield curve, and they are selling large blocks of bonds to go to cash. The Treasury operations were designed to fund its needs, but this week drove away one of the largest buying groups in the US. Petty, money markets are hardly attractive but the savers are being feed to the lions.

2008 Oct 10 06:12 PM