Bond Market Close July 30 2009

July 30th, 2009 5:03 pm | by John Jansen |

Prices of Treasury coupon securities (for the most part ) posted gains today and the longer the maturity of the issue the greater were the gains.

The yield on the 2 year note increased a solitary basis point to 1.17 percent. The yield on the 3 year note was unchanged at 1.68 percent. The yield on the 5 year note declined 3 basis points to 2.64 percent. The yield on the 7 year note slipped 5 basis points to 3.25 percent. The yield on the 10 year note slumped 5 basis points to 3.62 percent. And the 30 year bond was the star of the day as its yield tumbled 9 basis  points to 4.43 percent.

The 2year/10 year spread narrowed 5 basis points to 244 basis points and it is finishing the day well inside of the 252 basis point level which chart types deemed critical.

The 10 year/30 year spread narrowed 4 basis points to 81 basis points.

The 2year/5year/30 year spread is 32 basis points.

Inflationary expectations as measured by the breakeven levels on TIPS increased today. The breakeven level on the 10 year TIPS widened 5 basis points to 190 from 185 yesterday. The breakeven spread in  the 30 year sector widened a basis point to 229 basis points.

I did hear from traders that clients were entering the flattening trade following the seven year note auction. One bond trader observed a buyer of the 30 year sector versus the 5 year sector and another volunteered that he had hear of a similar large trade in the futures pits.

I am not sure specifically what motivated the curve flattening trade today. I think some of the motivation is the technicals I alluded to in an earlier post in which chart folks are enthusiastic that the 2 year/10 spread has remainred below 249 basis points.

I think, too , that the ability of the market to absorb (albeit in sloppy fashion) as much supply as it did this week without a total debacle has encouraged some that the back end of the trading range has been established in the low 370s on the 10 year note.

Next week the Treasury will announce another batch of supply but the actual bidding will not be on us until the following week. For that crowd the 10 year note will have the opportunity to grind itself back into the 3.30s.

Tomorrow will be an important day for the markets as we will receive the first cut of numbers on Q2 GDP. That will provide some insight into the second half of the year as we observe the behavior of business and consumers.

I think the equity bulls are hoping for big liquidations of inventory so that production in Q3 and Q4 to replenish those inventories will power the recovery.

It might power the recovery in Q3 and Q4 but if the labor market remains weak and if businesses are laden with excess capacity how will the economy grow in subsequent quarters.

I run on and it is late.

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  1. One Response to “Bond Market Close July 30 2009”

  2. By BL on Jul 30, 2009 | Reply

    “…if the labor market remains weak and if businesses are laden with excess capacity how will the economy grow in subsequent quarters.”

    How has the economy ever gotten out of recession then?

    I sort of like one behavioral economist’s observation that people just get tired of them. Pent up demand so to speak….


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