Treasury Market Update

July 31st, 2009 12:51 pm | by John Jansen |

The belly of the curve is rather robust today  as yields decline sharply across the yield curve. The yield on the 2 year note has declined 6 basis points to 1.11 percent. The yield on the 3 year note has slipped 7 basis points to 1.60 percent. The yield on the 5 yea rnote has dropped 9 basis points to 2.54 percent. The yield on the 7 year note has tumbled 11 basis points to 3.17 percent. The yield on the 10 year note has declined   8 basis points to 3.3 percent. The yield on the long bond has edged lower by 6 basis points to 4.35 percent.

There are several factors driving yields lower.

The devil is in the details and the details of the GDP report are comforting for bond jockeys for whom bad is good. As I noted here earlier in a snipper from Chris Low of FTN consumption was weak and disappointing. Ultimately, consumption will drive the economy and the speed and extent of a recovery is heavily dependent on spending. The jury is still out on that but at the moment spending is subdued.

Today is month end and that means month end extensions from indexers. The extension is meager in Treasuries but larger in MBS. One salesman reported seeing MBS types getting their duration via the Treasury market as spreads are so tight that they felt more comfortable owning Treasuries at these levels.

There is also a collective sigh of relief that the supply is finished for now and that howeve rshort the period is there is at least some hiatus from Treasury issuance.

Spreads in the belly are benefiting from the rally. Yesterday at auction time the 5year/7 year/10 year spread was 34 basis points. At the moment it is 27.

The 2year/5year/30 year spread is 32 basis points after opening the session at 32 basis points.

And even the 10 year/30 year spread has widened to 82 basis points from 81 basis points.

It is just an indicator of where the buying is concentrated.

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  1. 4 Responses to “Treasury Market Update”

  2. By sbenard on Jul 31, 2009 | Reply

    Thanks for the info and interpretation. The bond markets continue to be a cryptic enigma to me. Fascinating, but baffling at the same time!

  3. By reddy on Jul 31, 2009 | Reply

    Thx. for educating us regarding bond market inner works

  4. By Rick Arvielo on Jul 31, 2009 | Reply

    Thanks for the treasury market update

  5. By J.R. on Aug 1, 2009 | Reply

    Thanks John,

    What of the Fed’s $29 billion of fixed coupon purchases on Thursday and Friday? How much of the falling yields, if any, can be attributed to these actions?

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