The FN 4.0 is currently +0-01 at 98.06 yielding 4.187% while the FN 4.5 is trading -0-02 at 100-25 yielding 4.406. The secondary market current coupon is 4.340%. The FN 4.5 is +100/10yr TSY, one basis wider from open, one bps tighter from 5pm going out yesterday
As much as I'm sure you're eager for another rant on the range trade, that topic will only get passing mention this morning. Instead, we'll take a look at what the morning has held for prices so far and what the strategy implication is for the rest of the day as well as tomorrow.
The title references this morning's Jobless Claims reading not so much because the headline or internal jobless data is driving trade in the bond market, but rather because its passing provided the last clue as to how prices could move between 830AM and 11AM. The trade? Prices moved decidely lower at 830 AM, came within a tick of the lower limits of the recent range, and have since corrected with intraday "floors" at the exact levels seen leading up to 830...
But the very best account of the entirety of AM trade in the bond market is provided by a dissection of the futures chart...
Actually, the captions in the chart tell the whole story! In case it's hard to follow...
1. After yesterday's late stock sell-off, there was a slight bearish pre-disposition entering today's trade (not enough to cause drama, but enough for some weakness)
2. But it wouldn't make much sense to get too far in front of short positions with a potential market mover on the horizon (claims). ***Remember*** Such potentially market moving events are only PASSED OFF as such unless they are a big enough shock to justify movement OUTSIDE the range. So unless claims were shocking enough to suggest a decidedly directional (meaningfully higher or meaningfully lower) move, the range trade could continue and claims would merely LOOK LIKE the catalyst.
3. Claims did not shock. A bit weaker than expected, but not enough to mean much in the big picture. Again, what follows next is NOT CAUSED BY CLAIMS. Rather, claims were temporarily the last shoe to drop before traders could continue their planned profit-taking after yesterday's stock sell-off gift.
4. Evidence that traders "never wanted to hurt anyone" with the selling comes when the market puts in the dead center of it's low range smack dab on a very pertinent technical support level of 117-26... This says: "thank you, we'll proceed with range-bound chopatility to our next technical price level as Claims did nothing to change our bigger picture and simply allowed the maintenance of positions we wanted to keep anyway... See you at 1100AM..." What was 1100AM?
5. Treasury auction announcements on the horizon. 2.5 hours of intervening time... what's the gameplan?
6. We know the floor is in at 117-26, so obviously prices move up, but how much?
7. Well, with yet another "shoe to drop" before further positions could be fully supported, let's take it right back to this AM's 118-00 level. That's kind of like our "wait and see" price level.
8. But wait! What's this?! Stocks are falling! Ok then, let's take a quick poke at that good old 118-05 price that MG and AQ have been talking so much about on that good old blog...
9. Auction announced slightly higher than expectations...
At 11am, Treasury released the terms of next week's 2yr note/5yr TIPS/5yr note/7yr note auction cycle. In total the Treasury will sell $123 billion in debt. Auction amounts: Monday: $7 bn 5yr TIPS (1 bn more than last auction), Tuesday: $44 bn 2 yr notes (1bn more than last auction),Wednesday: $41 bn 5 yr notes (1bn more than last auction), Thursday: $31bn 7 year notes ( $2bn more than last auction). This is more than anticipated by many market watchers. Specifically, you should notice the increased issuance of 7yr notes, this is likely a function of the Treasury attempting to increase the duration of their portfolio.to offset the unexpected amount of duration the Fed absorbed via MBS purchases
10. A bit of indecision... And of course we sell a bit on the news But at least for now, let's hold the 118-00 as a floor...
Need more? Make Sense?
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