Closing Notes – August 16, 2010

16 Aug

It was off to the races again today, trying to see who can front-run the Fed apparently as the long end of the curve saw a lot of fireworks.

Quick Rundown

2Y 50.1 –3.9, 5Y 139.2 –7.8, 7Y 198.6 –8.4, 10Y 258.2 –9.8, 30Y 372.5 –14.5

2s5 89.1 –3.9, 2s10 208.1 –5.9, 2s30 322.4 –10.6, 5s10 119 –2, 5s30 233.3 –6.7, 10s30 114.3 –4.7

Swap Spreads: 2Y 17.9 –1.1, 5Y 20.8 –1.2, 7Y 10.4 –3.6, 10Y –3.2 –6.5, 30Y –43.5 –6.5

Charts Of The Day

TIPS Chart Updated

Swap Spreads Latest

Commentary

Today was fairly busy especially in the 10 and 30Y swaps where we saw a lot of buying (at least in the cash sector). Another interesting thing to note is the 5Y TIPS actually reached –8 bps today. You can see from the first chart the effect that the latest moves from the Fed has had on TIPS. Corporate bonds were relatively quiet, wider by 2bps according to Tim over at CDR, with Financials notably wider at 5bps.

I am still maintaining my stance however, as I said I will be looking at potential opportunities in yield curve spread land. During the crisis in 2008, we saw the curve flatten dramatically, very similar to what’s occurring now. While I’m very cautious about trying to express a longer term view (remember, I am opting for shorter term “tactical” positions now), I believe some opportunities do exist, particularly in the 10s30 and 5s10s to engage in a flattener position, keeping in mind where to get out in case things change for the worst.

US Yield Spreads - Current

Economic Calendar, Tuesday 8/17

8:30 AM

  • Housing Starts, consensus 5.6m, previous 5.49m
  • Building Permits, consensus 5.8m, previous 5.83m
  • Producer Prices: m/m consensus 0.2pct, prev. –0.5pct, y/y consensus 4.2pct, prev. 2.8pct, ex-food/energy m/m prev 0.1, y/y prev 1.1

9:15 AM

  • Industrial Output, previous 0.1pct
  • Capacity Utilization, consensus 74.6pct, previous 74.1pct

No notable bond auctions for the remainder of this week.

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