December 30 2013 Opening

December 30th, 2013 6:56 am | by John Jansen |

Prices of Treasury coupon securities have registered very modest gain in another holiday affected overnight trading session. The 10 year note is a tick higher in price and with the inverse relationship between price and yield intact the yield is a smidgen lower at 2.996. The 5s 30s spread is 0.6 basis point steeper at 221 basis points and 10s 30s is 0.2 basis points flatter at 93.8 basis points. The 5s 10s 30s butterfly is a basis point cheaper at 33.3 basis point and the 5s 7s 10s butterfly is 0.4 basis point richer at 13.3 basis points. I had written last week that I thought the 7 year is the cheapest sector on the curve and that is why  added that issue to the morning mix. Dealers report very light volumes once again. There were rumors early of Japanese sellers of the belly which pressured that sector but as the Bund caught a bid Treasuries climbed from their lows. Central banks have been the only buyers of note and they have had a predilection for off the run 2 year paper.

The 5 s 30sspread  I noted is at 221 basis points.That spread powered from 238 on December 17 to 204 on December 23.Clearly someone was performing a bond market based imitation of Roberto Duran with a loud cry of ” no mas”. That spread at 221 has completed a 50 percent retracement of that rapid and painful stop out trade. There is longer term resistance at 225 basis points and that should stop the steepening in the short term.

The Turksih lira has taken a drubbing of late on political tensions in that country. The currency has recently plummeted from 1.96 to the dollar in mid October to 2.17 overnight. The currency has bounced and is now at 2.13 on sales of the dollar by the central bank ($ 600 million worth) and the prospect of heavier dollar sales in January. Mark Chandler of Brown Brothers in his morning note reports that equities in Turkey have jumped by 3 percent but fixed income markets are not participating in the festivities. He notes the yield on the 2 year note has climbed 8 basis points to 10 percent and the CDS is still climbing.

Today should be a quiet one with many participants away at home and hearth for the holiday. The economic releases scheduled for today are decidedly second tier with only Pending Home Sales and Dallas Federal Reserve Manufacturing on the docket. I do not have a strong opinion on directionality and so it will probably be a function of the most recent large trade.




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