Treasury prices rose yesterday as the Treasury market reacted to a drop in equity prices and a stronger than expected 10 year note auction. Investors’ concerns on the difficulty that the Greek Government will be able to successfully deal with that country’s fiscal problems, coupled with a sharper than anticipated decline in Consumer Credit (falling $11.5 billion in February vs. the expected -$0.7 billion) pushed investors out of stocks and into US government debt. Additionally, the Treasury department auctioned $21 billion of 10-year Treasuries and received bids totaling an impressive $78 billion for a bid to cover ratio of 3.72 which is well above the one year average of 2.81. Indirect bidders demanded 43.1% of the new securities; the average level of foreign interest has been 40.60%. The Treasury Department will auction $13 billion of a re-opened 30 year bond today at noon CDT. By the end of the day the 2 year note had risen 5/32 to yield 1.05% while the 5-year increased 14/32 yielding 2.60%. The 10-year note rose 25/32 to a yield of 3.85% while the long bond moved 1and 15/32 points to yield 4.74%.
Also on Wednesday Federal Reserve Bank of Kansas City President Thomas Hoenig, spoke in Santa Fe, NM where he continued to push for a change in monetary policy, as he has done in the past 2 FOMC meetings, in order to avoid potential inflationary problems. He added to his remarks by giving a specific target of 1.00% which will still represent an accommodative range. Additionally, Federal Reserve Chairman Ben Bernanke spoke about the financial crisis and the Fed’s response at the Dallas Regional Chamber Business Group. The Chairman mentioned that, even though the economy is improving, it still is far away from fully recovery. He specifically cited the housing and job markets as two of his primary concerns:
“We have yet to see evidence of a sustained recovery in the housing market. Mortgage delinquencies for both subprime and prime loans continue to rise as do foreclosures. The commercial real estate sector remains troubled, which is a concern for communities and for banks holding commercial real estate loans. Some of the toughest problems are in the job market. The unemployment rate has edged off its recent peak, but at 9.7 percent, it is still close to its highest level since the early 1980s. Although layoffs have eased in recent months, hiring remains very weak.” Speech at the Dallas Regional Chamber 04/07/2010
Treasury prices have not moved from yesterday’s levels as the lack of economic news, with the exception of the Jobless Claims report, gives investors little direction for the day. Both the 2-year and the 5-year notes have risen 1/32 to yield 1.03% and 1.65% respectively. Meanwhile the benchmark 10-year Treasury note is trading flat at 3.85% while the 30-year has declined 1/32 to yield 4.74%. The Department of Labor released its weekly Initial Jobless Claims report with worse than expected results. The report shows that claims increased by 18,000 versus the revised previous week to 460,000, analysts were expecting a reading of 435,000. Continuing Claims, on the other hand, were lower than expected at 4.550 million versus the expected 4.630 million. The less volatile 4-week average number of initial claims rose slightly to 450,250.
Worth mentioning is that the Treasury curve (3mo/10yr UST) continues to be wide as inflationary concerns, coupled with the massive amount of debt the government is issuing, continue to keep short rates low while pushing yields in the intermediate and long maturities higher. For example, look at the graph below which shows historical rates of the 3Mo T-Bill and the 10-year US Treasury. The 20 year average spread of these 2 maturities is 173 bps while its current spread more than doubles that at 369 bps. This presents opportunities for investors willing to extend out the curve, without necessarily going to the longest maturities, to pick up yield.
Also on Wednesday Federal Reserve Bank of Kansas City President Thomas Hoenig, spoke in Santa Fe, NM where he continued to push for a change in monetary policy, as he has done in the past 2 FOMC meetings, in order to avoid potential inflationary problems. He added to his remarks by giving a specific target of 1.00% which will still represent an accommodative range. Additionally, Federal Reserve Chairman Ben Bernanke spoke about the financial crisis and the Fed’s response at the Dallas Regional Chamber Business Group. The Chairman mentioned that, even though the economy is improving, it still is far away from fully recovery. He specifically cited the housing and job markets as two of his primary concerns:
“We have yet to see evidence of a sustained recovery in the housing market. Mortgage delinquencies for both subprime and prime loans continue to rise as do foreclosures. The commercial real estate sector remains troubled, which is a concern for communities and for banks holding commercial real estate loans. Some of the toughest problems are in the job market. The unemployment rate has edged off its recent peak, but at 9.7 percent, it is still close to its highest level since the early 1980s. Although layoffs have eased in recent months, hiring remains very weak.” Speech at the Dallas Regional Chamber 04/07/2010
Treasury prices have not moved from yesterday’s levels as the lack of economic news, with the exception of the Jobless Claims report, gives investors little direction for the day. Both the 2-year and the 5-year notes have risen 1/32 to yield 1.03% and 1.65% respectively. Meanwhile the benchmark 10-year Treasury note is trading flat at 3.85% while the 30-year has declined 1/32 to yield 4.74%. The Department of Labor released its weekly Initial Jobless Claims report with worse than expected results. The report shows that claims increased by 18,000 versus the revised previous week to 460,000, analysts were expecting a reading of 435,000. Continuing Claims, on the other hand, were lower than expected at 4.550 million versus the expected 4.630 million. The less volatile 4-week average number of initial claims rose slightly to 450,250.
Worth mentioning is that the Treasury curve (3mo/10yr UST) continues to be wide as inflationary concerns, coupled with the massive amount of debt the government is issuing, continue to keep short rates low while pushing yields in the intermediate and long maturities higher. For example, look at the graph below which shows historical rates of the 3Mo T-Bill and the 10-year US Treasury. The 20 year average spread of these 2 maturities is 173 bps while its current spread more than doubles that at 369 bps. This presents opportunities for investors willing to extend out the curve, without necessarily going to the longest maturities, to pick up yield.
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