Good Morning.
The rates market saw below average trading volume yesterday as a lack of economic day and headline news events kept market participants sidelined, waiting for more significant guidance.
Stocks traded in a choppy manner but ended the day pretty much flat. The S&P closed down 0.1% at 1,108. The Dow lost 0.18%, closing at 10,383. The NASDAQ was 0.08% lower at 2,242 when the closing bell rang. S&P stocks futures fell overnight....
10 year Treasury note futures are marginally improved after spending three sessions moving sideways....
The on the spot 3.625% coupon bearing 10 year Treasury note is trading +0-05 at 98-24 yielding 3.775%. Trading flows favored the long end of the yield curve overnight thanks to real money bargain buying. Volume was below average though. 10s are testing resistance to start the session.
The yield curve is however steeper..the market is clearly still biased against "rate sheet influential" benchmark TSYs. This disdain for duration illustrates a high sensitivity to extension risk. READ MORE
The FN 4.0 went out +0-06 at 97-07 yielding 4.265% yesterday and the FN 4.5 ended the day +0-04 at 100-11 yielding 4.467%. The secondary market current coupon was 4.454%. The secondary market current coupon was +66 basis points over the 10 year TSY note and +56.9 bps over the 10 year swap rate. "Rate sheet influential" yield spreads moved tighter vs. benchmarks as new originator loan production continues to be below average. This allowed yield spreads to gradually tighten vs. benchmarks throughout the session. Although prices steadily improved over the course of the day, there were no reprices for the better.
The FN 4.0 is currently +0-04 at 97-12 yielding and the FN 4.5 is +0-03 at 100-14 yielding 4.456%.
NEXT EVENT: S&P/Case-Shiller Home Price Index at 9:00am. Expecting the 20 city index at +0.00% MoM. -3.2% YoY
Weak econ data may add some short term correction momentum today...but the market is still largely short so this progress is more likely a function of forced buying aka short covering in an illiquid trading environment. 9:00AM data will be key to confirming this overnight positive progress, it will be key to bringing out more forced buyers (including index extension demand).