Across the Curve

Morning Update March 24 2008

 Prices of Treasury coupon securites are dropping rather dramatically in response to the JPMorgan/ Bear Stearns /Federal Reserve story that JPM has quintupled its bid for Bear Stearns stock. The guarantee from the Fed of Bear assets has ironically been shifted into a structured product of sorts. JPM will now eat the first $1billion of losses and the Fed the next $29 billion before JPM steps back in. Separately the Home Loan System has increased the ability of Home Loan Banks to purchase MBS and that weighed on sentiment in the Treasury market. Finally,existing home sales unexpectedly rose in February when the various pundits had anticipated a modest decline.

So Treasury yields have jumped between 12 basis points and 20 basis points. The curve continues to flatten rather dramatically,too , as 2year /10 year spread has gapped in to 170 basis points. The yield on the 2 year note has jumped 19 basis points to 1.79 percent and the yield on the 5 year note has jumped a full 20 basis points to 2.57 percent. The yield on the 10 year has increased 15 basis points to 3.48 percent and the yield on the bond has moved 12 basis points to 4.28 percent.

Dealers report light activity with most of Europe closed today