A real snoozer again in the Eurodollar market. People must be taking the early part of this week off due to the lack of data and the holiday Wednesday (the floor is closed). You’re seeing some spreads in the futures curve correct finally. Red pack - Green pack spread is flattening for the first time in days. The March 2011 - March 2012 spread I mentioned a few days back is starting to come back down in price. This is primarily due to someone buying the March 2010 - March 2011 - March 2012 butterfly. They’ve bought about 3,500 so far. If the March 2011-2012 spread gets to around 115 I think it’s a buy, still seems rich here (122.5). The first 8 futures contracts themselves are feeling top heavy here, they are incapable of breaking but they can’t seem to go much higher either. It should be interesting to see how/if the curve moves over the next week or so.

Only trades to note in the option space, hot money bought 7000 midcurve December 9825-9850 put 1×2’s (futures are 9860). Vol is basically unchanged from Monday’s close. The December 2010 9862.5 straddle is 92/93.

Prices of Treasury coupon securities are posting modest gains in overnight trading. In Germany the ZEW survey of investor confidence fell more than expected. Separately, Fitch noted that amongst the large industrial nations the UK is most likely to face the ignominy and and infamy of a credit downgrade.

The yield on the 2 year note has slipped a basis point to 0.84 percent. The yield on the newly minted 3 year note has declined 2 basis points to 1.39 percent. The yield on the 5 year note edged lower by 2 basis points to 2.27 percent. The yield on the 7 year note declined 3 basis points and fell below 3.00 and landed at 2.97 percent. The yield on the 10 year note dropped 3 basis points to 3.46 percent. The yield on the Long Bond declined 2 basis points to 4.38 percent.

Prices of Treasury coupons are finishing the day with just marginal changes and most of the benchmark securities are virtually unchanged. The 3 year note auction produced a superior result but it is languishing in secondary market trading. There has been very little follow through buying and dealers who missed the auction do not feel impelled to chase bonds with the 10 year tomorrow and the 30 year on Thursday.

I did hear of a reasonable amount of customer activity and active trading. Salesmen reported Asian central bank buying of the three year sector as well as the same group buying in the seven year bucket. Another salesman reported central bank selling of off the run 5 year paper. He assumed that money would park itself in the new 3 year note but averred that he had no direct knowledge of that process.

Prices of Treasury coupon securities are posting small (very small) mixed changes in overnight trading. Benchmark securities are either unchanged or a tad lower in price (and with the inverse relationship between price and yield constant, yields are a tad higher, unless somehow Goldman Sachs (GS) can change that mathematical relationship).

The overnight news lacked a real catalyst for violent price change. The only noteworthy item is a healthy jump in German Industrial Production which rose 2.9 percent in September versus 1.8 percent in August. That leaves IP in that country declining at a YOY pace of -12.9 percent September versus -16.5 percent in August.

Prices of Treasury coupon securities are posting mixed changes today and as the day draws to a close the belly of the curve will outperform the wings of the curve. There was some active trading earlier in the session but as the day has worn on customer interest has wanned.

In an earlier post I noted that the yield curve had steepened to near record levels with 2 year/10 year at 270 basis points and 2 year/30 year at 360 basis points. Each of the spreads has retraced some ground and each is 4 basis points to 5 basis points narrower now as I write.

Prices of Treasury coupon securities are registering very small changes in overnight trading and those small changes have reversed some of the curve steepening march of recent days. So in the overnight, longer maturities have gained ground while shorter maturity issues have languished. Market participants are awaiting the monthly labor data and I think the price action indicates position squaring before the data release at 830AM New York time.

The yield on the 2 year note increased 2 basis points to 0.89 percent. The yield on the 3 year note edged higher by a basis point to 1.41 percent. The 5 year note was a bit of an inflection point as it was unchanged and yields 2.34 percent. The yield on the 7 year note declined a basis point to 3.04 percent. The yield on the 10 year note is lower by a basis point at 3.51 percent and the yield on the Long Bond edged lower by a basis point to 4.39 percent.

Prices of Treasury coupon securities have posted modest gains in overnight trading and while the curve remains near all-time steep levels, that action abated overnight. In fact, in the overnight session the 5 year note was the superstar and outperformed its brethren.

The yield on the 2 year note declined 2 basis points to 0.87 percent. The yield on the 3 year note fell 3 basis points to 1.40 percent. The aforementioned 5 year note saw its yield decline 4 basis points to 3.33 percent. The 7 year note also experienced a yield decline of 4 basis points and rests at 3.04 percent as the day begins. The yield on the 10 year note shed 3 basis points and resides at 3.49 percent. The yield on the Long Bond dropped 2 basis points to 4.38 percent.

Prices of Treasury coupon securities are reacting rather violently to the statement by the FOMC at the conclusion of its meeting. The Committee in its infinite wisdom retained the “extended period of time” language, and that has anchored the front end and has motivated a shift in the tectonic plates which undergird the long end of the Treasury market.

For the day, the yield on the 2 year note is unchanged at 0.91 basis points. (For the record it is 257PM as I begin to compose this missive.) The bifurcation word which I employ works again today. The carnage is significantly worse the further out along the yield curve that you are. The yield on the 3 year note has edged higher by 2 basis points to 1.45 percent. The yield on the 5 year note has increased 4 basis points to 2.40 percent. The yield on the 7 year note has soared 7 basis points to 3.11 percent. The yield on the 10 year note surged 8 basis points to 3.55 percent. The yield on the 30 year bond has catapulted 10 basis points to 4.42 percent.

Prices of Treasury coupon securities have posted modest losses in overseas trading. I do not see a strong impetus in the news for the small declines in Treasury prices. Stocks around the globe are trading well with robust gains in Europe and healthy advances in Asia. So I will opine that those gains and futures market indications of solid gains when trading begins in the US are sapping strength from bonds.

Bond traders also confront the uncertainty of the FOMC meeting and the policy statement from that group at about 2:15PM New York time. I believe that the FOMC will acknowledge the continued improvement in the economy but will genuflect to the depth of the recession and its associated headwinds and will reaffirm the need to hold the funds rate at an unusually low level “for an extended period”.

Prices of Treasury coupon securities put in a bifurcated performance today as the short end of the curve barely budged while the long end suffered sharp losses.

The 2 year/10 year spread widened 6 basis points today to 256 basis points.

Prices of Treasury coupon securities are posting robust gains in overnight trading. Risk aversion has risen from the dead as the dollar is rallying to 4 week highs and global equity markets are quaking. Futures market trading indicates that US markets, too, will open with sharp declines.

Feeding the paranoia were large and continuing losses at UBS and news that the UK government has invested heavily in Royal Bank Scotland and Lloyds. Those transactions provide that a significant number of employees at that firm may not receive cash bonuses.

Prices of Treasury coupon securities have registered modest gains in overnight trading. There were a host of economic numbers in various venues but it seems that traders have latched onto a weaker than expected German retail sales number and have used that as a springboard to slightly higher prices (and once again the longstanding inverse relationship between prices and yield has held, so yields declined). This is also the last day of the month so there is also some support from the modest index extension.

The yield on the 2 year note has declined 2 basis points to 0.95 percent. The yield on each of the other benchmark issues has declined by 3 basis points. The yield on the 3 year note is 1.47 percent and the yield on the 5 year note is 2.41 percent. The yield on the new 7 year note rests at 3.07 percent and the yield on the 10 year note is 3.47 percent. The still investment grade Long Bond pays a whopping 4.31 percent.

Prices of Treasury coupon securities tumbled today as someone magically flicked the “risk switch” to on today and risk assets prospered whilst risk averse assets languished. The headwind of seven year note supply ($31 billion) and the consumation of a week in which the Treasury regurgitated $123 billion in securities weighed on sentiment, too.

I think the main factor driving prices today was the flight to riskier assets. The dollar weakened against most other currencies as the safe haven bid into the currency faded.

Prices of Treasury coupon securities are posting modest (very) losses in overnight trading as some of the fear and angst which dominated trading yesterday fades today.

Equity markets around the globe have posted losses but as one follows the sun the losses diminish and early indications are that the US market will open with small gains.

Prices of Treasury coupon securities staged another impressive performance as the market showed unwavering strength into the teeth of record issuance by the Treasury. The market maintained its firm tone today despite a significant rebound yesterday.

Some of the same factors which influenced trading yesterday were at work again today.

Prices of Treasury coupon securities have maintained the strong tone which prevailed for much of yesterday’s session and are slightly better bid as trading shifts across the big pond to the States. Equity markets around the globe have experienced weakness and pre market trading indicated that shares will open soft when trading begins in the US in several hours.

I posted a brief note on weakness in Emerging Market equities and that in conjunction with a strengthening dollar seems to send a signal that risk reduction is in vogue again today.

Prices of treasury coupon securities did a rapid turnaround today and wiped out a chunky portion of the market's recent losses. There are a myriad of reasons for the about face. I offer some without any ranking of their relative importance.

The market had sold off significantly. If we use everyone’s favorite metric, the 10 year note, that issue had traded at a low yield on 3.10 percent early in the month following the weakish labor data. The 3.55 ish level represented about a 50 percent retracement of the summer rally off the 4 percent yield high.

Prices of Treasury coupon securities have posted very modest gains in overnight trading and have retracted some of the rocky ground over which they trod yesterday as the market careened into a ditch. There was very little news overnight and the focus of the market this day will be pricing the largest tranche of 2 year notes ever issued ($44 billion).

The yield on the 2 year note declined 2 basis points to 1.01 basis points. (The forward roll into the WI is 6ish so the new issue is trading around 1.07 basis points.) The yield on the 3 year note slipped 2 basis points to 1.58 percent. The yield on the 5 year note declined a basis point to 2.48 percent. The yield on the 7 year note edged lower by 2 basis points to 3.14 percent. The yield on the 10 yield note declined one basis point to 3.54 percent. The yield on the Long Bond is unchanged at 4.36 percent.

This story reminds me of the old Laurel and Hardy line which I am not quite sure if I recall exactly. But I believe it went, “This is one fine fix we are in now, Ollie."

AIG has competition from a Greenberg-run company which is siphoning business from AIG and along with it the ability to pay the several dimes which AIG owes the government.

Prices of Treasury coupon securities tumbled sharply today and the yield curve steepened substantially in advance of significant supply from the US Treasury this week.

In addition to the fear of Treasury supply a thin patina of fear and uncertainty regarding the intentions of the mortgage crowd covers the market. As I noted in a prior post, there certainly was some servicer selling today and that contributed to the sell off. However, participants report that the selling was sporadic and modest in size. Some traders thought that much of the selling in the market which forced us to these higher yields was a result of active traders front-running the servicer trade.