Curvature

July 2nd, 2009 1:06 pm | by John Jansen |

Thus far this day the belly of the Treasury curve has been the big winner. The Long Bond has been the relative loser of the day.

The 2year/5year /30 year spread is 45 basis points. It began the day at 36 basis points.

The 5 year/30 year spread is 189 basis points and is about 7 basis points steeper on the day.

The 10 year/30 year spread is 84 basis points and is 4 basis points wider today.

The 2year/5 year spread trades in the mid 140s. it has retreated from record wide levels of 160 basis points in mid June.

Current levels seem too wide if one believes the Janice Yellen mind dropping of yesterday that the funds rate might be zero for years. If that be the case then one should pile in to the 5 year note for the ride down the curve and buckets of carry.

The 2year/10 year spread is about 250 basis points. That spread in the moments prior to the employment report last month was 282 basis points. The report today abrogates any views formed with the release of the May report.

Release of that report sparked fears of Fed tightening sooner rather than late and motivated many investors and traders to jettison steepening positions.

My thought is that there truly is no chance that the Fed will tighten and that with supplyon the way next week the curve sshould steepen dramatically to underwrite supply.

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  1. 2 Responses to “Curvature”

  2. By Barney on Jul 2, 2009 | Reply

    Are you considering shorting (ie TBT) next week? Thanks for the informative blog.

  3. By gab on Jul 2, 2009 | Reply

    “If that be the case then one should pile in to the 5 year note for the ride down the curve and buckets of carry.”

    I’m there dude (pardon the colloquialism). Now go out there and pound the table!

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