May 30 2014 Opening

May 30th, 2014 6:17 am | by John Jansen |

Prices of Treasury coupon securities have registered small losses in overnight trading and sit well below the intra day highs attained in some giddy trading yesterday. The 10 year note currently rests around 2.47 percent which is well off the intraday low of 2.41 which it touched yesterday. The Long Bond had traded down to around 3.27 and that now rests near 3.32 percent.There is an old adage which holds that the market always trades differently once the street owns paper. Street positions and the positions of near street types drive short term trading and with the clarity of perfect hindsight it appears that the auction process filled in quite a few frantic shorts. In addition, the end of the month trade is so well advertised that the market will now need several days to digest that which it now owns and and if there is to be another thrust to lower yields it will need the support of the economic fundamentals. I apologize for not writing this yesterday!

The curve is a tad flatter overnight. I see 5s 10s at 93.5 and I had marked that at 93.7 basis points last night at about 900PM. similarly 5s 30s has moved to 178.3 from 179.5 and 10s 30s is 84.8 versus 85.8 last evening. The 5 year has cheapened quite a bit against the wings as 2s 5s 10s is 22.2 this morning. When I composed this piece at this time yesterday it was trading 18 basis points. So with the belly sagging on these spreads it tells me the street owns more than it wants and is having a difficult time hawking the recently auctioned paper to unsuspecting buyers.

In overnight emails from traders I have heard of central bank selling in the 3 year sector and central banks nibbling away on the buy side in the 10 year sector.

On the data front the Japanese desired inflation and now a whiff of inflation is wafting through the room. CPI (core) printed at 3.2 percent YOY and according to MNI that is largest gain for that metric since February 1991.

Industrial Production in Japan fell 2.5 percent in April but that is another consequence of the sales tax hike.

In Germany retail sales unexpectedly declined 0.9 percent.

In the UK an index of consumer confidence climbed to zero and one commentator noted that was the first time the indicator was out of negative territory in nine years.

In the US there will be quite of bit of Fedspeak today. The incoming President of the Cleveland Fed, Loretta Mester, will speak at a conference on monetary policy and inflation. Richmond Federal Reserve President Lacker will discuss a paper on the lender of last resort. And Philly Fed President Plosser and San Fed President Williams are on a panel discussing monetary policy.

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