Prices of Treasury coupon securities posted modest gains today in a month end session dominated by month end buyers. Bonds improved even as equity markets punished those who chose to sell weakness yesterday. There were index buyers early and then some duration based selling late in the day.
The yield on the 2 year note slipped 4 basis points to 0.80 percent. The yield on the 3 year note dropped 5 basis points to 114 percent. The 5 year note yield edged down 5 basis points to 1.67 percent. The 10 year lagged its brethren as its yield declined just 2 basis points to 2.69 percent. The yield on the Long Bond dropped 4 basis points to 3.56 percent.
The 2year/10 year spread widened 2 basis point to 189 basis points.
The 2 year/5year/30 year butterfly is out to 104 basis points after trading as narrow as 90 last week. That movement reflects the outperformance of the 5 year note versus the wings.
The belly of the curve should continue to outperform the wings for the next several days as the Federal Reserve will purchase 3year and 4 year paper tomorrow and then 4 year through 7 year paper the following day. These are Treasury purchases.
One of the pieces of economic data available today was the Case Shiller report which fell more than expected. In a research note to clients today economists at UBS note that their are flaws in the Case Shiller which overstate weakness.Here is a relevant excerpt:
Flaws in the SP/CS price measures
The guest panelists, Dr. Norm Miller and Dr. Michael Sklarz of Collateral Intelligence, emphasized that:
(2) The repeat sales methodology draws on non-representative data sets (e.g., it excludes prices for properties that have never been sold following the initial purchase and is biased toward high-turnover properties).
(3) The index has difficulty capturing value added between sales via improvements if these are not reflected in local permits data.
(4) For foreclosed properties, the index is not adjusted for the fact that a number of these properties have been abandoned and are in relatively bad shape. (Although based on repeat sales, the index is not quality-adjusted.