Bond Market Close June 30 2009

June 30th, 2009 4:24 pm | by John Jansen |

Prices of Treasury coupon securities sagged modestly today as the much ballyhooed month end / quarter end trade failed to materialize. There were several factors at work.

The market has rallied 50 basis points from the high yields attained in early June and that has probably induced some discretionary selling. Dealers are especially disposed to make sales as the Treasury will announce another round of supply on  Thursday.

The recent round of auctions of last week went well but until that round of auctions which were quite orderly being short supply has been quite profitable. i think that many traders sense an impending round of sloppiness because of the way the supply will hit the street.

The announcement will be late Thursday morning. I think that the unwahsed will have begun their exodus for points east before that announcement and there will leave little opportunity to establish substantial shorts before the bidding begins next week.

There will be four auctions and little set up. It should be interesting.

Corporate rate locking pressured the market today and the Oracle transaction is the chief culprit in that department.

There is also supply in Europe this week with the UK and Germany and France all set to issue. So the simple dynamic of no supply is passing and we are poised to enter a period of copious issuance by public and private entities.

The yield on the 2 year note edged higher by 2 basis points to 1.11 percent. The yield on the 3 year note is unchanged at 1.61 percent. The yield on the 5 year note climbed 2 basis points to 2.54 percent. The yield on the 7 year note increased 2 basis points to 3.18 percent. The yield on the 10 year note poked 3 basis points higher to 3.51 percent. The yield on the Long Bond yield edged higher by 2 basis points to 4.31 percent.

The 2 year/10 year spread is a basis point wider at 240 basis points.

Ten year TIPS are coming Monday but that did not preclude a shap rally today. The breakeven spread moved to 178 from 171.

Oracle priced $ 4.5 billion of bonds today. The company issued $ 1.5 billion 5 year notes at T+120 and $ 1.75 billion 10 year notes at T+ 155. The $ 1.25 billion 30 year bonds priced at T+ 185.

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  1. 2 Responses to “Bond Market Close June 30 2009”

  2. By Tyler K on Jun 30, 2009 | Reply

    “Prices of Treasury coupon securities sagged modestly today as the much ballyhooed month end / quarter end trade failed to materialize.”

    I don’t know about that assessment.

    Recall from the opening post you quoted the 10yr and the bond, respectively, up “a basis point to 3.48 percent … higher by 2 basis points to 4.30 percent”. By the 10AM timeframe, these were respectively then in the ballpark of ~3.57 and ~4.37. Your later statement of “Corporate rate locking pressured the market today and the Oracle transaction is the chief culprit in that department.” may provide some explanation in those regards.

    But by shortly after 1PM, both the 10yr and the long bond were enjoying orderly moves in improvement amounting to near 10bp! Hello! — surely someone was pushing on the bid. So, I would reason that even if there was continued rate locking pressure, it served only to mask the actual strength of the other side.

    Reflecting upon your concluding remark from the open: “I expect another very quiet day with some upside price bias from current levels. There will be buying by index accounts for month end and that should provide a bid into 300PM.”, I think that, along with the above, plus consideration of the consequences of those getting in position ahead of next week’s supply, rounds out an explanation for the day.

  3. By John Jansen on Jul 1, 2009 | Reply

    A fair criticism.

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