Bond Market: March 31 2009

March 31st, 2009 3:53 pm | by John Jansen |

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

At a UBS conference call about home prices (held on Monday and hosted by UBS housing analyst David Goldberg), guest panelists suggested that the SP/CS measures overstate price declines because of several flaws in the indexes.
The guest panelists, Dr. Norm Miller and Dr. Michael Sklarz of Collateral Intelligence, emphasized that:
(1) The S&P/CS index sample is biased toward areas of the country with relatively large foreclosure-related sales.
(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.
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  1. 6 Responses to “Bond Market: March 31 2009”

  2. By JPHouston on Mar 31, 2009 | Reply

    Whatever, the Case Shiller index is the ONLY accurate measure out there. All of the other ones are biased to larger home sizes which trumps any of the biases highlighted here by a FACTOR OF 10!

  3. By Brian on Mar 31, 2009 | Reply

    Interesting to note that the long bond, which had underperformed relative to the rest of the curve has retraced to the bottom of its 2 week range or so around 3.55

  4. By Storm Petrel on Mar 31, 2009 | Reply

    Regarding #3 on the SP/CS index, it also doesn’t capture value LOST on properties after a sale because of owner negligence. Drive around Detroit for a little while to get an understanding of how owners can destroy the value of their own properties….

  5. By frankl on Mar 31, 2009 | Reply

    change the title pls – march31

  6. By Dr.Dan on Mar 31, 2009 | Reply

    Infact, you neednt bother giving the dates in the title at all. Its anyway getting added automatically (underneath the title)

  7. By franko on Apr 1, 2009 | Reply

    i thought it was an early AprilFool’s! attempt, LOL

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