Prices of Treasury coupon securities posted a truly bifurcated result today with yields on the shorter maturity benchmark issues rising while longer dated issued posted gains.
The yield on the 2 year note climbed 4 basis points to 1.08 percent. The yield on the 3 year note increased 5 basis points to 1.65 percent. The yield on the 5 year note increased one basis point to 2.60 percent. The yield on the 7 year note posted a 2 basis point decline to 3.28 percent. The yield on the 10 year note slipped 3 basis points to 3.69 percent. The Long Bond was the superstar of the list as its yield tumbled 6 basis points to 4.57 percent.
The 2 year/10 year spread narrowed 7 basis points to 261 basis points.
The 10year 30 year spread compressed 3 basis points to 88 basis points.
The 2year/5year/30 year butterfly cheapened to 45 basis points.
The breakeven spread on 10 year TIPS narrowed 6 basis points to 186 .
The 30 year breakeven spread is 232 basis points.
The Treasury conducted an auction of $ 42 billion 2 year notes today and the response as viewed through the prism of auction results was less than festive. There was a tail of 2 basis points. (In bond market jargon the tail at an auction is the spread between the level at which the issue was trading in the market immediately prior to the bidding deadline and the level which ultimately cleared the market.)
One trader observed that this was the biggest tail on a 2year note auction since last December. I will trust him on that front.
I do think that there is a market related reason for the tail. I think that many investors did not wish to miss the auction and preferred not to be aggravated by the bidding process.
Consequently, there was significant buying of the WI issue yesterday and today in advance of the auction. I think that took the short base out of the market.
If there truly had been a debacle here and if dealers and investors had bought many more bonds than they needed,then the long end would not have traded as well as it did following the auction. if dealers were long they would have played defense by tatooing the 5 year note and 7year note which are scheduled for tomorrow and Thursday.
Economic data which printed today was mixed. The Case Shiller housing data indicates more stability in the housing market.
On the other hand the Conference Board confidence number declined for the second month in a row and showed a consumer deeply concerned about the state of the labor market.
San Francisco Fed President Yellen spoke today but did not break any new ground. She noted that the recovery would be slow but when the time arrives to tighten she said that the Fed would do the right thing and would not repeat the policy mistakes of the Arthur Burns and William Miller regimes.
I hope she is right. Actually, I hope that she is wrong ass traffic to the blog is highly dependent on market volatility. A strong whiff of inflation wafting through the economic precincts would be good for traffic!!