Treasury Market Update

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Includes: BIL, DFVL, DFVS, DLBL, DLBS, DTUL, DTUS, DTYL, DTYS, EDV, FIVZ, FLAT, GOVT, GSY, IEF, IEI, ITE, LBND, PLW, PST, SBND, SCHO, SCHR, SHV, SHY, SPTL, SPTS, STPP, SYTL, TAPR, TBF, TBT, TBX, TBZ, TENZ, TFLO, TLH, TLT, TMF, TMV, TTT, TUZ, TYBS, TYD, TYNS, TYO, UBT, USFR, UST, VGIT, VGLT, VGSH, ZROZ
by: John Jansen

The long end of the Treasury market has a case of social disease today as it steepens appreciably. The 5s 10s spread opened early this morning at 68.5 and is out to 70.2. The 5s 30s spread started the day at 141.4 and is currently 143.4. The 10s 30s spread began the session at 72.9 and trades currently at 73.9. The front end is a rock as 2s 5s 100.4 and has only moved to 100.8. Consequently, the 2s 5s 10s spread has actually narrowed to 30.9 from 31.3. That is a very uncharacteristic move in a down market.

Why has the curve steepened today? Maybe, because it can. A non-flippant response would be that it flattened too much last week in the holiday-shortened, lightly staffed environment to underwrite the dollop of 2s 5s and 7 offered by Jack Lew and his minions.

One yield curve aficionado offered the opinion that there are several trades going on. He said that there is a large real money seller of 7s and that has battered the 7-year note and the note futures. I see 5s 7s 2 basis points steeper than where it opened early this morning when it was 40 versus 42 currently. He also noted that 5s versus 15s is 3.5 steeper, while 15s 25s is 0.4 flatter. He has not heard or observed significant end user flow, but noted that the traditional bond contract is taking a pummeling while the ultra trades superbly.