May 29 2014 Opening

May 29th, 2014 6:14 am | by John Jansen |

Prices of Treasury coupon securities continued to rally in overseas trading. I have not received any dealer notes yet on client flows but I suspect volume was light as today is Ascension Thursday and much of Europe is closed for that holiday. Against that background the yield on the 10 year note is resting at a new cycle low of 2.423. I marked the issue last evening around 900PM at 2.443. So the beat goes on. The yield on the 5 year note slipped to 1.487 from 1.502 and the yield on the Long Bond declined to 3.278 from 3.296. The belly of the curve has lagged versus the Long Bond. The 5s 10s spread narrowed to 93.6 from 94.1 and 5s 30s narrowed to 179.1 from 179.4. The 10s outperformed the 30s with 10s 30s a tad steeper at85.5 versus 85.3.

In economic news retail sales in Japan plunged in April by 13.7 percent. One story I read said that was a record pace of decline but it does reflect the imposition of a new sales tax on April 1. Here is a county mired in an economic slump for twenty years  and they are resorting to measures that even Herbert Hoover would not have employed  85 years ago. In Australia capex dropped quite a bit more than expected but the outlook for the future was quite positive and that sent the antipodean currency bouncing back above 93 cents.

In the US today we receive data on initial jobless claims as well as the first revision of Q1 GDP. Analysts expect that the initial miniscule gain in GDP will now print as a small loss. Analysts blame the weather for the quarterly GDP contraction and uniformly anticipate that happy days will be here again over the remainder of the year. Time will tell on that thought and if anything this is the recovery that virtually always disappoints.

Today Jack Lew and his minions will auction$29 billion 7 year notes. The 5s 7s 10s butterfly is at 10 basis point this morning (using WI 5s and WI 7s). That is approximately where it traded moments before Ms Yellens ill fated March 19 press conference. At that time 2s 5s 10s was also around 9 basis points. That spread is currently 18 basis points. At that time the yield on the 5 year note was 1.57 versus 1.48 as I compose this electronic missive. So I think 2s 5s 10s is cheap to 5s 7s 10s and it is cheap to the level of rates in my always humble opinion. Ergo, I can not get too excited about the 7 year note and would rather own the 5s on the curve.


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