Bond Expert: Monday Wrap

Includes: BIV, CS, PX, SPTL
by: John Jansen

Prices of Treasury coupon securities surged today and erased some of the losses suffered Friday following the better than expected labor data.

Why have we rallied in front of an onslaught of supply? There are several reasons,and some of them are obtainable with the advantage of perfect hindsight.

Many had said that there was plenty of convexity paying on Friday. The byword today is that there were rumors of paying and that the preponderance of the paying was from speculators front-running the anticipated paying from the crazy convexity crowd. That paying never happened in the real world, and consequently those who were short raced to cover today as the trade worked against them.

I think the same can be said of Treasury traders. Shorts established on Friday in the aftermath of the labor report fared poorly, and those traders were ripping up those tickets and heading back to square one.

There was quite a bit of corporate issuance today and and the unwinding of rate locks associated with that process stimulated the market.

The market backed up about 40 basis points last week and some bought just because we had backed up so much.

There was buying of US versus Europe today as the 10 year Treasury opened the day 40 basis points cheap to bunds and is finishing around 28 cheap.

The yield on the 2 year note dropped 6 basis points to 1.23 percent. The yield on the 3 year note declined 8 basis points to 1.76 percent. The yield on the 5 year note edged lower by 8 basis points to 2.74 percent. The yield on the 7 year note declined 9 basis points to 3.39 percent. The yield on the 10 year note slipped 8 basis points to 3.77 percent. The yield on the Long Bond declined 8 basis points to 4.53 percent.

The 2 year/5 year/30 year butterfly is 28 basis points.

The 2year/10 year spread flattened a tad to 254 basis points.

The 10 year/30 year spread is unchanged at 76 basis points.

Various spread sectors

Mortgages are about 3 ticks tighter to swaps today as the recent strong performance of that sector continues.

Swap spreads are mixed. Two year spreads are 2 1/2 basis points tighter at 45. Five year spreads are 2 1/4 basis points better at 45 3/4. Ten year spreads are 2 1/4 basis points tighter at 31. Thirty year spreads are one basis point wider at NEGATIVE 5 1/4.

The three month/ten year ATM straddle is 639 1/2 basis points today.

Corporate bond market remains dominated by an active new issue calendar today. I described quite a few of the issuers earlier.

The Credit Suisse (NYSE:CS) 10 year prices at T+ 155 . The issue is 155/150 currently.

Praxair (NYSE:PX) priced its 10 year deal at T+90 and that issue is 78 bid the gray market. I cannot read my scribble so treat the pricing level as suspect. The 78 bid in the gray is accurate.

Secondary corporate paper is unchanged with a softish feel about it.