Bond Market Close July 21 2009

July 21st, 2009 3:44 pm | by John Jansen |

Prices of treasury coupon securities have surged today as the staid market for government bonds transposes into a very volatile and combustible venue. The greatest gains were in the longer maturities while shorter dated paper improved but lagged its longer maturity brethren.

Once again a confluence of factors worked to push prices higher ( and with the inverse relationship intact, yields lower).

Chairman Bernanke testified before a Congressional committee and in his testimony he reasserted that the funds rate would be low for an extended period.

That motivated buyers in the long end of the Treasury market as well as spread product buyers. As I have pointed out in other posts today spread product has ratcheted tighter today. Every time someone sells a corporate bond or an agency (or other piece of spread product) that transactions usually generates a need to buy a Treasury,either as a hedge gets lifted (versus a long sale) or as a hedge is necessitated by a short sale.

The Federal Reserve has neatly defused the “exit strategy’ debate with an orgy of openness as opposed to an orgy of opaqueness and obfuscation which might have occurred in the past. Bernanke has made it abundantly clear that the SOMA will not be disengorging itself of recently acquired assets anytime soon. And when the time arrives to embark on a period of restrictive policy, asset sales are the least likely policy instrument to employed. That epiphany calmed the markets and scared shorts who had prepared for an ugly pronouncement .

The Federal Reserve did its part to monetize the debt today as it purchased  $ 7 billion of 2016 through 2019 paper. Nearly 50 percent of the purchase was concentrated in one issue,the current 7 year note.

Just to throw a little cold water on the party I would not be a fair and balance reporter if I did not note that on Thursday the Treasury will announce $ 101 billion of securities which will be on the auction block next week.

Last month the Treasury sold $ 101 billion in 2 year ,5 year and 7 year notes. Analysts lean toward a similar announcement this time, too.

In addition there will be a 20 year TIPS bond and there should be $ 8 billion of those bad boys.

The yield on the 2 year note has slipped 6 basis points to 0.91 percent. The yield on the 3 year note has edged lower by 8 basis points to 1.45 percent. The yield on the 5 year note has tumbled 12 basis points to 2.34 percent. The yield on the 7 year note declined 13 basis points to 3.02 percent. The yield on the 10 year note dropped 13 basis points to 3.47 percccent. The yield on the Long Bond declined 14 basis points to 4.37 percent.

The 2 year/10 year sprad narrowed 7   basis points to 256 basis points.

The 10 year/30 year spread is 90 basis points.

And the belly performed well with 2year/5 year/30 year at 60 basis points.

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  1. 3 Responses to “Bond Market Close July 21 2009”

  2. By S on Jul 21, 2009 | Reply

    Defused the crisis? THat is wildly optimistic reading

  3. By John Jansen on Jul 22, 2009 | Reply

    I said they have for now defused the debate about exit strategy.

  4. By Mikey on Jul 22, 2009 | Reply

    I’m not sure its defused. Maybe its been swept under the carpet for now but it seems to me Bernanke basically admitted to not knowing what they would do when it was time to close the stimulus tap and start tightening monetary policy.

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