Closing Notes – Aug 12, 2010

12 Aug

Today’s 30Y auction saw robust demand from an indirect bidder perspective with that category taking down 46.04%, 22% higher than the previous month’s indirect participation level of 37%

The bid to cover on today’s 30Y auction was fairly average, coming in at 2.77. It’s worth noting that this is the lowest coupon for 30Y bond issuance since May 2008, with today’s coupon at 3.875%. The bonds today yielded 3.95% which is relatively low, although we have seen lower yields at 3.54% in Feb 2009.

Here’s an updated 30Y bond auction chart with today’s auction included:

US Indicative Close

2Y 55.8 +3.6, 5Y 147.8 +4, 7Y 211.3 +3.3, 10Y 274.9 +5, 30Y 394.3 +1

2s5 92 +0.4, 2s10 219.1 +1.4, 2s30 338.5 -2.6, 5s10 127.1 +1, 5s30 246.5 -3, 10s30 119.4 -4

Swap Spreads: 2Y 16.2 +2.4, 5Y 19.2 +3, 7Y 8.7 +1.7, 10Y -2.9 -2, 30Y -39.3 unch

With the recent strength in USDJPY, I expect that the 30Y swap spread could remain around these levels and begin to retreat (widen) to 0. The vanilla curve is starting to flatten and most of the action was concentrated in the 10s30 which fell from record highs. It’s also encouraging to see 2Y swap spreads holding steady at these levels given the immense amount of short term corporate issuance that has come into the market as of late (both investment grade and HY).

Chart Of The Day – Historical Volatility

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