Bond Market Close April 29 2009
April 29th, 2009 3:10 pm | by John Jansen |I have to write earlier than normal and in abbreviated form. As some of you may recall my wife and I became grandparents on January 22 2009. Charlotte Jansen Preall is making her first visit to New York and I am heading to the airport to bring her, her mother and her grandmother to Across the Curve headquarters. So I need to be quick here.
The Treasury market is in new territory. The range has been broken. If the market does not locate a reason to hop back inside the range quickly, then this thing has more downside.
I believe I wrote this earlier in a comment.
The street just purchased $101 billion of 2year,5 year and 7 year notes. The entire package is underwater. That will not make anyone an avid buyer ahead of the $ 70 odd billion dollars which will be sold next week.
The Federal Reserve provided no deus ex machina for bidders. There was no elixir from Bernanke and his acolytes.
The event risk surrounding the meeting would have given traders some pause before they made sales. That restraint has been removed and traders are free to pummel this thing until it finds a level which attracts buyers.
In addition to the breakdown in price some yield curve trades have broken down, also.
The 2year/10 year spread is 214 basis points. In the moments prior to the announcement it was at an already wide 208 basis points.
The 5year 10 year spread had supported at 106 basis points. Prior to the FOMC statement the spread was 105. That is a little misleading as it is narrower by the amount of the 5 year roll with the switch to a new 5 year. Anyway, it is now 108 basis points.
My favorite 2year/5year/30year butterfly is hovering near support. That spread in the moments following the last FOMC meeting in the frenzied QE trade traded as richly as 145 basis points. It has supported several times around 90 basis points. I observed it earlier at 91 and it is currently 93. If we stay in bearish mode that spread will pierce the 90 level.
It is very ugly out there but I just do not see a reason to buy yet. The market is telling you to be short. So go with it.
2 Responses to “Bond Market Close April 29 2009”
By Indian Investor on Apr 29, 2009 | Reply
I’m scared that the US Treasury will go bankrupt.
By gustaf on Apr 29, 2009 | Reply
Clearly the fed has bigger fish to fry, namely agency purchases. The conundrum for me is do I sit in cash and watch the world go by waiting for better bond prices or jump now expecting the fed whack a mole action forthcoming. I guess the wait won’t kill me.