Bond Expert: Wednesday Wrap

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Includes: BA, HAL, SPTL, TLH
by: John Jansen

Prices of Treasury coupon securities surged today following a 10 year note auction in which the dealer community overwhelmed the best interests of the taxpaying public and purchased bonds at very cheap levels. (Which is one you are supposed to do when the issuer is delirious and you know the spigot will remain open gushing more supply.)

The yield on the 2 year note declined just a basis point to 1.02 percent. The yield on the 3 year note declined 3 basis points to 1.44 percent. The yield on the 5 year note drooped 5 basis points to 1.95 percent. The 10 year was the best bond of the day and its yield fell 9 basis points to 2.92 percent. The yield on the 30 year bond fell 6 basis points to 3.66 percent.

The 2 year/10 year spread narrowed 8 basis points to 190 basis points.

The 2year/5year/30 year spread richened from 71 basis points to 78 basis points.

The 10 year auction came at the cheapest point of the day and stopped just in front of support. Several technicians with whom I converse had pencilled in 3.05 as support, and a breach of that level would have them looking for a 3.25 percent 10 year note. Alas, it shall not happen, at least not now.

The failure of the market to break down precipitated a round of short covering which gave the market a grinding bid.

Subsequently, a mortgage-related account received in very large size in the belly of the swap curve and the hedging of that transaction pushed the 10 year to the low 2.90s. Essentially, most of the active players are trading the supply from the short side and today they got scalded.

Tomorrow is the final leg of this series of auctions as the week concludes with the reopening of the Long Bond for $10 billion. Today’s price action makes the bond a little less alluring and we will probably see some real sloppiness tomorrow.

Corporate bonds are unchanged in industrial names and 5 basis points to 10 basis points tighter in financials.

The mood of the market is much improved and there is reasonable two way flow.

Disney was offering a 10 year bond today about 40 basis cheap to outstandings at T+ 2 5/8.

The Boeing (NYSE:BA) and Halliburton (NYSE:HAL) deals from yesterday are 5 basis points to 15 basis points tighter.

3PM Reports

Agency debt

Agency paper is mixed today. Two year sector is tighter by a basis point and three year sector paper is unchanged. Five year paper is wider by 2 basis points and 10 year paper is tighter by about 2 basis points.

I previously mentioned supply in the 5 year sector. The price talk of T+ 91 is about a 10 basis point concession to the market.

Traders noted that the recent back-up in the market had led to some real account buying. One trader noted outright buyers in the 3 year through 5 year sector and another noted sellers of 1 year sector paper extending in to that sector also.