Almost 40,000 traded between 03.5 and 01.5 in the ten year over about an hour before the auction, at first I think I saw Hardy's pit guy say he was buying on the screen, puked em up, got short in size and they found the big stops. Eurex bund was very weak and hit size stops into 121.00. I thought it was related to Five year TIPS as well, rotating out of long end Treasuries into short end TIPS. Guy behind me fills for some JP Morgan guys in New York and they were buying 5-years in size on the break, about 5000 from 09 to 07.5. And then auction demand came out weak and we continued to get hammered. Grinding off of lows right now and locals covering shorts.
Holy Goldman Sachs
- Thread starter mcurto
- Start date
you rock, mcurto. great commentary!!!!!
keep it coming,
thanks!
surfer
keep it coming,
thanks!
surfer
Treasuries Battered By Slew of Factors...More To Come?
--Stone & McCarthy (Princeton)--
It has been a particularly ugly couple of days for the Treasury market. The primary supportive factor for the market last week appeared to be its oversold condition. That's not exactly a good reason for a long term rally. The market downside may have looked overdone in the near-term, but when a market is hit as hard as Treasuries were in September and through mid-October, there's probably a good reason for it.
So, after alleviating the technically oversold condition last week, Treasury market participants used the news of Bernanke replacing Greenspan yesterday to return the market to bearish form. Today then we saw strong data out of Germany and comments from the ECB's Weber that "the upward risks to price stability have notably increased." The combination hit European debt markets hard, which caused spillover selling in Treasuries.
That also hit the dollar particularly hard today, especially vs the euro and, to a lesser extent, stering. The weakness in the dollar was a particular negative for the long-end of the Treasury curve, making for a bear steepener for much of the day.
On top of that, the CRB has absolutely soared throughout the day, with energy prices leading the way higher. August 30 was the last time the CRB saw a rally this strong -- just as Hurricane Katrina hit. While the soaring energy market does offer the possibility that it may slow the economy, the extent of the gains have been such that they also spark concerns that it will be forced through into the broader inflation numbers. The overall energy sector of the CRB is up more than 5.5% on the day today, with natural gas up nearly 10%, heating oil and unleaded gas both up well more than 4% on the day and crude up more than 3.5%.
The mid-morning consumer confidence release came in weaker than expected, while existing home sales were stronger than expected. It was the confidence data that got the attention, but even that sparked only a very brief bid. The failure to find any followthrough only served as another reason to sell this market today, sending prices lower still through the late morning.
But the heavy losses really came during the afternoon. The 10-year and long bond broke below yesterday's lows even ahead of the 5-year TIPS auction and that helped to set in motion a cascading wave of technical selling that continued throughout the remainder of the day, which was compounded by talk of heavy hedge fund selling in 10s.
The 5-year note TIPS auction was not a pretty sight, which only added to the problems. The auction saw a light bid and a stop well off of the 100pm bid side. The auction stopped at 1.740%. 97.09% of bids at the high yield were accepted at that high yield. This is a reopening of the 0 7/8% of 4/15/10 TIPS issue originally auctioned in October of last year. The stop was well above the pre-auction talk, with the WI was bid 1.707% at the 1:00pm bidding deadline according to several sources. The bid/cover came in at 1.65, which is well down from the 1.88 bid/cover for the April auction and from the 1.80 bid/cover for the October auction. Non-comps were $68 mln, vs April's $78 mln and October's $128 mln.
After falling below yesterday's lows at the long-end in the early afternoon, it wasn't long before the front-end through the belly of the curve plunged below the low prices from October 14th, sparking fresh technical selling. As that pulled the rest of the curve down further as well, 10s were soon back testing the key low prices and high yields just above 4.50% from October 13, 154, 17 and 18 as well. Only this time, those levels failed to hold. That had the 10-year note yield at levels not seen since the very end of March. Bonds did not quite break above the intra-day high yields from October 14th, but, on a closing basis, the yield on the bond looks set to be at its highest point since April 11. The 5-year note hit 4.40% on the move, the highest closing yield since May 2002, while the 2-year note, reaching 4.32%, is at its highest yield since May of 2001.
Treasuries today headed out right at their lows and still falling. And with nothing on the calendar tomorrow but more supply in the form of the 2-year note auction, this collapse may not be over yet. Any concerns about the uncertainty of a new Fed Chairman will remain with us. The bearish technicals will still be a problem if we can't get back through the worst of the levels from October 14th. The global economic and inflation outlook still is not a major problem, but it is definitely headed in the wrong direction for Treasuries, with the global economy doing well and inflation concerns growing around the world. Any upside surprises to durable goods orders and GDP later this week, and/or the slew of data next week -- including the non-farm payrolls release -- and a battered market may be ready to throw in the towel.
--Stone & McCarthy (Princeton)--
It has been a particularly ugly couple of days for the Treasury market. The primary supportive factor for the market last week appeared to be its oversold condition. That's not exactly a good reason for a long term rally. The market downside may have looked overdone in the near-term, but when a market is hit as hard as Treasuries were in September and through mid-October, there's probably a good reason for it.
So, after alleviating the technically oversold condition last week, Treasury market participants used the news of Bernanke replacing Greenspan yesterday to return the market to bearish form. Today then we saw strong data out of Germany and comments from the ECB's Weber that "the upward risks to price stability have notably increased." The combination hit European debt markets hard, which caused spillover selling in Treasuries.
That also hit the dollar particularly hard today, especially vs the euro and, to a lesser extent, stering. The weakness in the dollar was a particular negative for the long-end of the Treasury curve, making for a bear steepener for much of the day.
On top of that, the CRB has absolutely soared throughout the day, with energy prices leading the way higher. August 30 was the last time the CRB saw a rally this strong -- just as Hurricane Katrina hit. While the soaring energy market does offer the possibility that it may slow the economy, the extent of the gains have been such that they also spark concerns that it will be forced through into the broader inflation numbers. The overall energy sector of the CRB is up more than 5.5% on the day today, with natural gas up nearly 10%, heating oil and unleaded gas both up well more than 4% on the day and crude up more than 3.5%.
The mid-morning consumer confidence release came in weaker than expected, while existing home sales were stronger than expected. It was the confidence data that got the attention, but even that sparked only a very brief bid. The failure to find any followthrough only served as another reason to sell this market today, sending prices lower still through the late morning.
But the heavy losses really came during the afternoon. The 10-year and long bond broke below yesterday's lows even ahead of the 5-year TIPS auction and that helped to set in motion a cascading wave of technical selling that continued throughout the remainder of the day, which was compounded by talk of heavy hedge fund selling in 10s.
The 5-year note TIPS auction was not a pretty sight, which only added to the problems. The auction saw a light bid and a stop well off of the 100pm bid side. The auction stopped at 1.740%. 97.09% of bids at the high yield were accepted at that high yield. This is a reopening of the 0 7/8% of 4/15/10 TIPS issue originally auctioned in October of last year. The stop was well above the pre-auction talk, with the WI was bid 1.707% at the 1:00pm bidding deadline according to several sources. The bid/cover came in at 1.65, which is well down from the 1.88 bid/cover for the April auction and from the 1.80 bid/cover for the October auction. Non-comps were $68 mln, vs April's $78 mln and October's $128 mln.
After falling below yesterday's lows at the long-end in the early afternoon, it wasn't long before the front-end through the belly of the curve plunged below the low prices from October 14th, sparking fresh technical selling. As that pulled the rest of the curve down further as well, 10s were soon back testing the key low prices and high yields just above 4.50% from October 13, 154, 17 and 18 as well. Only this time, those levels failed to hold. That had the 10-year note yield at levels not seen since the very end of March. Bonds did not quite break above the intra-day high yields from October 14th, but, on a closing basis, the yield on the bond looks set to be at its highest point since April 11. The 5-year note hit 4.40% on the move, the highest closing yield since May 2002, while the 2-year note, reaching 4.32%, is at its highest yield since May of 2001.
Treasuries today headed out right at their lows and still falling. And with nothing on the calendar tomorrow but more supply in the form of the 2-year note auction, this collapse may not be over yet. Any concerns about the uncertainty of a new Fed Chairman will remain with us. The bearish technicals will still be a problem if we can't get back through the worst of the levels from October 14th. The global economic and inflation outlook still is not a major problem, but it is definitely headed in the wrong direction for Treasuries, with the global economy doing well and inflation concerns growing around the world. Any upside surprises to durable goods orders and GDP later this week, and/or the slew of data next week -- including the non-farm payrolls release -- and a battered market may be ready to throw in the towel.
Again primary dealers taking down a sizable amount of the two-year auction, about $11.6 billion, so more than half of the auction. Maybe they are the ones also selling the long end or off-the-runs to make room for the new notes. As for mortgage convexity selling, the Bank One guy, who does the service hedges for Countrywide Financial has been rolling 10-year puts in the Dec from the 108 strike into the 107 strike, not in huge size but has been active. The Wells Fargo mortgage guy has been selling his Dec 110 calls and exchanging them for some Jan 110 calls, have not seen him do anything on the put side (he was the same guy who bought these Dec 110 calls when Dec was trade at the 113 handle, and took a HUGE loss on them, obviously a hedge). Goldman bank traders have been selling a bunch of puts after we stabilize somewhat on these hard breaks (about 15,000 of the Dec 107 puts today and about 10,000 Dec 106 puts in the five year). And finally Merrill (which is usually Pimco) continues to sell every put and call imaginable two to three points out of the money in the 10-year and 30-year for yield enhancing on the cash side.
I tend to agree with the Goldman moves, but it depends if its customer trades or prop traders. More often than not when the prop guys are active in the options it usually does move the opposite direction as it is a hedge for some other position. But when its Goldman customer business (on the futures side) thats a different story, sometimes it will trend in that direction for very lengthy periods. I think we still have a little more downside left as well, tough to say levels when every technical level is months old and hard to rely on at this point. I would definitely like to sell a rally back up to 108-10 small in the short term, but watch out for suprises in GDP.