Closing Comments

February 19th, 2008 1:44 pm | by John Jansen |

 Prices of Treasury coupon securities plummeted today as a variety of factors combined to motivate aggressive selling by speculators and end users. I am not sure if I can create an accurate hierarchy of concerns but as a starting point many spoke with concern about the actions of the underfunded Pension Benefit Guarantee Corp. PBGC announced that it would shift assets away from bonds and into equities. That sounds like a dubious strategy at the present time but some attribute the market’s woes to that announcement as a signal of the relative unattractedness of fixed income product.

Other sectors of the fixed income  market have suffered a worse drubbing than the Treasury market. Swap spreads have widened by 2 basis points to 3 basis points. In the mortgage market the FNMA 5.5 coupon has underperformed the 5 year Treasury by about 8/32 . Corporate bonds have leaked wider and the IG9 is wider by a nickel. So this is not just a rout in Treasury debt.   It is across the entire spectrum of fixed income paper.

Inflation has reared its ugly head as commodities have broken out to the upside. Gold,oil and copper have catapulted to higher prices and energy stocks on the stock exchange are leading the pack.

Yields on benchmark Treasury coupons are higher by 8basis points to nearly 16 basis points. This is non chronological but the best performer on the list is the 30 year bond which has seen its yield jump by 8 basis points to nearly 4.66 percent. The yield on the 10 year note is higher by 11 basis points and rests at 3.88 percent. The 5 year note in the belly of the curve was treated with disrespect by the rentier class as its yield moved higher by nearly 16 basis points to 2.92 percent. And the 2 year note which has been gyrating every which way around the 2.00 percent level closed 13 basis points higher at 2.04 percent.The 2 year/10year spread which touched 192 basis points on Friday is back to 184 basis points.

There is a whiff of inflation in the air at least when viewed from the vantage point of the TIP market. I watch the 10year TIP spread and that has widened about 4 basis points today to 233 basis points.

JJJ

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