April 21 2014 Opening

April 21st, 2014 6:18 am | by John Jansen |

Prices of Treasury coupon securities have rebounded in quiet overseas trading. The last day of trading in the US was on Thursday and that pre holiday session witnesses a late day swoon which brought 10 year yields above 2.70 with a close around 2.72. The issue had opened Thursday around this hour at 2.64 percent. Given the narrow trading range which has prevailed last week and for several weeks that move was remarkable and not particularly understandable. I received very few emails regarding the price action during that late day swoon and the only meaningful information I can report is from a swap trader who reported rate paying in the belly by hedge funds and then some of the same suspects unwinding flattening trades (in rates). I would offer the flimsy rationale that desks were poorly staffed in advance of the holiday and liquidity would have been at a premium if someone needed to sell a big block of paper. The market has rebounded but the level of activity is rather muted. Much of the world is closed for Easter Monday. One trader based in Asia reported buyers of 10 year US versus other government bonds.

The yield on the 5 year note has slipped to 1.711 this morning from 1.734 late Thursday. Similarly, the yield on the benchmark 10 year note has declined to 2.70 from 2.723. The yield on the Long Bond has dropped to 3.504 from 3.521. The yield curve is showing mixed changes. The 5s 10s spread is unchanged at 98.9. However, 5s 30s has inched wider to 179.3 from 178.7 and 10s 30s has widened to 80.4 from 79.8. I wrote last evening here about the battering of the 5 year note. It has recovered some on butterfly as 2s 5s 10s has moved from a cycle wide 34.2 to 31.1 this morning.

In overnight economic news Japan reported a record breaking trade deficit of $134 billion in the year ending March 31. In the three months ended march 31 exports actually declined a very small amount while imports increased 4.5 percent. For the full one year period energy imports jumped 18 percent as the long term consequences of the Fukushima earthquake continue to ripple through the economy.

In the Ukraine tensions remain high as a flimsy brokered deal flounders. I get the sense that analysts now believe that Mr Putin will eventually incorporate the Eastern Ukraine into his empire but he will achieve his goal without an overt invasion but instead will apply a death by a thousand cuts strategy.

This is a big week for equity earnings with about 32 percent of the S and P reporting during the week.


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