Across the Curve

MBS

Mortgages are experiencing small changes today and have been gyrating between flat to swaps and a plus better or worse.

The Federal Reserve has been a steady buyer of higher coupons.

That has been ofset by a steady stream of orignation selling.

Hedge funds have been observed rolling down in coupon.

Some money managers have rolled positions to December.

Some end users have favored the 5 1/2 coupon.

In the 15 year sector there has been profit taking by banks who had previously been buyers. TYhe prudent strategy is to take some risk off the table ahead of the FOMC meeting .

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Treasury Meeting Redux

Yves Smith has posted her take on the meeting yesterday between bloggers and senior Treasury officials. Here is a link to Naked Capitalism.

As others who attended post I will try and get that up here,too.

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Futures Color

The Eurodollar market has managed to give back all of its gains overnight. We’ve been inversely tracking the S&P pretty well this morning and Hedge Funds are buying a bunch of downside in the option market.  The two major trades dominating the market this morning are paper legging into Red-Green pack spreads. They are buying the Red pack to sell the Green pack futures.  They are keeping the curve steeper by doing so and they seem to have decent size. Earlier today they were asking for 4000 pack spreads in the pit all-or-none, not sure how far along they are at this point. The second order that is dominating the day’s trading is a Hedge Fund buying Midcurve November 9825 puts for huge size. He has paid up through multiple prices and seems to have bought roughly 40,000 (futures are 98.43).  These options expire next friday into December 2010 futures so this is a large bet on either the FOMC meeting or the NFP number.  Other than that, Vol is off a bit in the front quarterlies and reds but the put order has caused the midcurves to go bid.  The December 2010 straddle is 105/105+

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IBM Five Year

I am hearing that the IBM 5 year will be $ 1 billion in the + 60 area and that the book is around $ 5billion currently

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Corporate Bonds

Corporate bond spreads a mostly a basis point or so wider today. There is some additional weakness in financial names and some of that stuff is a nickel wider.

In general the level of activity is modest as participants await the FOMC’s Godot on Wednesday.

There is some issuance today.

Diageo is offering $ 500 million 5 year notes at + 100.

IBM is bringing a 2 year floater and a 5 year fixed tranche. Size is of the benchmark variety and I do not have price talk at this juncture.

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Treasury Market

The treasury market today is inextricably wedded to the fortunes of the stock market. One participant noted that the 1015 through 1018 level has acted as support previously and some are focused in that level.

The market is at its worst levels of the day as the very weak levels which the futures markets had predicted earlier have not materialized. One trader reported leveraged selling in the belly of the curve but others report that volume is light as investors want to sift through the FOMC statement tomorrow.

Others are anxious to see the refunding announcement and what the Treasury has to say about future issuance.

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Libor

i just noted that three month Libor has slipped to 0.27813.

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A Note on Issuance (Treasury Variety) Via a Dealer

TREASURY ANNOUNCE THAT THEY WILL BE RUNNING DOWN CASH BALANCES THRU Q1 2010, WHICH WAS RESPONSIBLE FOR LOWER DEBT ISSUANCE EXPECTATIONS FOR THE CURRENT QUARTER. WE STILL EXPECT LARGE SCALE BORROWING FROM THE TREASURY IN THE JAN/MARCH QUARTER. MATURITY EXPECTATIONS THAT  CAME OUT OF YESTERDAY’S TREASURY DEBT ISSUANCE ANNOUNCEMENT SHOWED THAT 2 THRU 7YR NOTE ISSUANCE WILL CONTINUE TO RISE. 2 AND 3YR ISSUANCE WILL TOP OUT IN EARLY 2011 AND 4 THRU 7YR ISSUANCE WILL CONTINUE TO RAMP UP THRU 2015. 10YR AND BOND ISSUANCE HAS FLATTENED OUT RECENTLY AND WILL REMAIN FLAT TO GENTLY RISING THRU THE REST OF THE NEXT DECADE. THE BELLY WILL BEAR THE BRUNT OF ISSUANCE PRESSURE FOR THE NEXT 5 TO 6 YEARS…

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Systemic Risk

Political blog Politico is reporting that Barney Frank will postpone consideration of systemic risk legislation.

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IG 13 and Some CDS

- 5yr Snr Bank CDS: BAC 130/140 (+15), CITI 210/220 (+20), JPM 70/80 (+8), WFC 123/133 (+12)

- 5yr Snr Broker CDS: GS 120/130 (+8), MS 142/152 (+8)

- CDS Index: IG13 109/109.75 (+2)

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