2s10s Steepens Into And Post Auction

Can someone please stop the endless cha-ching noises coming out of Julian Robertson's offices already? What's that? Ok, so...apparently absent some sodomy involving bond vigilantes and the inhabitants of the Marriner S. Eccles buildling, nothing can be done.

2s10s Steepening Further As Bond Investors Wake Up To Trillions In New Supply

A hundred billion this week, over a trillion next year, and it starts to add up. It appears that what has been phenomenal strength in the UST market for many months now, undoubtedly with the fervent support of the Federal Reserve, seems to be abating. Over the past week the 2s10s charts has moved stepper by about 15 points, proving that Julian Robertson's steepener trade and its Constant Maturity Swap derivatives will likely end up being quite a profitable position. With a record onslaught of new issuance this week alone, and the expiration of POMO activities on Thursday, the supply side of the equation may finally be catching up bond traders.

Daily Credit Summary: October 22 - Now You See It, Now You Don't

Spreads were tighter in the US as all the indices improved (moving credit back just wider than Tuesday's close while stocks are just higher than Tuesday's close). Today's prices action in credit saw narrow range inside days in both IG and HY suggesting short-term underperformance (reversals from the tightening trend), and while over the last two days equity and credit are close to unch, TSYs are notably higher/steeper in yield, the dollar a lot lower and gold and oil up as the vol term structure continues to steepen up with short-dated buy-writers seemingly ruling stock risk.

Daily Credit Summary: October 20 - CAT and Dogs

Spreads were broadly wider in the US as all the indices deteriorated (with IG just underperforming HY as intraday ranges remained low but sentiment was definitely more skewed to the widening side). The last week or so has seen a shift in the relative-strength between debt, equity, and vol and based on this we would expect HY-IG decompression in the short-term and equities to underperform credit here (for equity guys a sell the rally rather than buy the dips mentality in stocks short-term).

Daily Credit Summary: October 15 - Upside Down

Spreads were broadly wider in the US as all the indices deteriorated (once again underperforming a relentless equity market). For the first day this year, IG4-13 all had upward sloping curves in 3s5s7s10s (notably IG8-11) as HY underperformed IG and rolls decompressed modestly. IG trades 4.3bps tight (rich) to its 50d moving average, which is a Z-Score of -0.7s.d.. At 97.5bps, IG (adjusted) has closed tighter on only 13 days so far this year (206 trading days). The last five days have seen IG diverging from its 50d moving average.

Daily Credit Summary: October 13 - In Advance Of i7 Sales

Spreads were tighter in the US as all the indices improved albeit marginally as intraday ranges remained very low (but equity is still the dramatic outperformer of the last two weeks or so as IG experiences its longest period of low volatility since August of 2008). IG trades 1.5bps tight (rich) to its 50d moving average, which is a Z-Score of -0.2s.d.. At 100.5bps, IG has closed tighter on only 19 days so far this year (204 trading days). The last five days have seen IG flat to its 50d moving average.

Bond Steepeners On Fire: 14 bps In 24 Hours

Whether or not the rapid move in curve steepening is driven by a flight from long-dated bonds (and yesterday someone very demonstratively puked on the 30 year, both before and especially after the auction), or inflation is starting to finally be a concern for the bond community (unlikely, as it would be a first: everyprevious time equity and credit have disagreed about inflation, it was always credit which was proven right), the 2s10s has steepened by a whopping 14 bps in less than 24 hours. The flipside: more cash for the banks. Is it enough? Or, more importantly, will it be enough 2 years from now when the bank CRE whole loan holdings start rolling (hopefully). At least Bernanke has a head start on the $3.5 trillion problem which is contained.

Daily Credit Summary: October 8: Divergence Remains

We remain fascinated by the divergence that we have seen in equity and credit in the last few days and suggest that with the curve action (in cash and synthetic), TSY moves, and today's lack of follow through on good numbers, that credit may just have this one right again. The S&P is 25pts higher from the 10/5 close, IG is around 1bp wider in that same period, HY is unch (notable given the recent voracious appetite for risk), and against all of that vol is down 2.5pts (which might have helped explain the difference but in this case does not). It appears from the bottom-up that the aggregate relationships between CDS, equity, and vol are somewhat convergent currently (after compressing recently) but top-down there is some significant divergence to fill.

Daily Credit Summary: October 7 - Nifty Thrifty

Spreads were wider in the major indices today as single-names actually led the way weaker today and high beta underperformed low beta with wideners outpacing tighteners by almost 8-to-1. Credit continues to underperform stocks and a lifting in compression trades today and strength in TSYs suggests far less confidence in the recovery in fixed income investors than equity investors.

Daily Credit Summary: October 6 - Aussie Rules, Fisk Drools

Spreads are mixed in the major indices today as single-names lagged any underperformance intraday and credit notably underperformed equities all day. Aside from very early trading tights in IG12/13, the on-the-runs were unable to break yesterday's tights (while SPY managed to gap up and hold well off yesterday's highs). Intraday ranges in IG and HY remained very muted again despite a pick up in volumes (as talk was of elevated activity in rolls and curves once again).

Daily Credit Summary: October 5 - Brokebanks Mounting

Spreads were tighter in the US today as all the indices improved (amid low volume and small intraday ranges as HY outperformed IG notably) with single-names generally following the indices lead (and performing in line with their weightings except AIG/ILFC which modestly outperformed). IG remained wide of Thursday's tightest levels while HY is now trading tighter than those tights as we note HY ebullience since the gap weaker open on Friday seems very blinkered (SPY is +2.3%, IG +0.65%, and HY +3.9% from that open).

Daily Credit Summary: October 1 - Risk Off

All risky assets closed at their lows as the disappointing macro numbers today (following on from yesterday's green shoot withering headlines) were not helped later in the day by the weak auto sales numbers (which were in general in line to slight worse than expected but dramatically down from CfC summer-time fun and games). The unusual dollar questioning of Bernanke pushed some volatility into DXY (and ramping in EUR/JPY was unable to budge it much) as his 'other-than-fiscal issues' comment (which reminds us of Monty Python discussing the Romans) slammed DXY and then saw a run to quality as DXY closed at its highest since 09/08.

2s10s Breaking Into A Deflationary Pattern

Another chart for idiot day traders who think that having a snapshot of a developing market is sometimes relevant. Indeed, we do forget that every data point is always continuously priced in, and need to be violently reminded of that fact: thank you Efficient Market Hypothesis.

Daily Credit Summary: September 28 - Divergent Dullness

Spreads were tighter in the US as all the indices improved (though were unable to break Friday's tights and closed wider than Thursday's close). IG trades only 8.1bps tight (rich) to its 50d moving average, which is a Z-Score of -0.7s.d. At 105bps, IG has closed tighter on only 8 days so far this year (192 trading days). The last five days have seen IG converging to its 50d moving average.