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[11:41 US GOVTS: Real Money Using Coupon Passes To Exit; FM Blast] Boston, May
21. There apparently is a new wrinkle to the intermediation trade between buying from Treasury to sell to the Fed with real money, including central banks, now in on the act. Indeed, several Street sources relay central banks were aggressive offers into this morning's coupon pass, with one letting go of a large block of old 5-years. Other offers too are coming in from embedded Asian real money longs -- in the higher coupons -- also looking to sell size without unduly upsetting the market, and especially considering the illiquidity in off- the-run bids from the Street.
Whether influenced or not by the much higher tenders coming in on the Fed
Passes ($45 bln tendered for $7.4 bln bought in today's pass for a 16.2% hit
rate), fast money has been tattooing the bid and especially so in the belly with the 10-year most leaned on. Note as well, earlier this week the Bank of England (BoE) gilt pass too saw a need to offer paper at or below the market's bid side in order to get sales off.
Obviously, this is not a very supportive situation for the treasury market,
if previous sponsors are heading for the exits in a fairly sizeable manner. With this, and $101 bln in supply next week (and another $70 bln in 3s, 10s and 30s to be announced the week after)look for more downside action. Q-E III anyone?
NEW YORK (CNNMoney.com) -- In two indications of continuing job market weakness, a drop in the government's weekly reading of initial unemployment claim filings failed to match the surge of the prior week, and the number of people filing on an ongoing basis rose to a record high for the 16th straight week.
A total of 631,000 people filed new claims for jobless benefits in the week ended May 16, the Labor Department said. That's a decrease of 12,000 from an upwardly revised 643,000 in the previous week.
The total was less than expected. Economists surveyed by Briefing.com had forecast 625,000 initial claims, according to a consensus estimate.
Moving the Market
Initial jobless claims and continuing claims come in worse than expected.
The Treasury market has cratered. The 10 year note has returned to the 3.30 percent level. Why did we crater?I think I have a solid answer(s) but wish I had thought this through earlier.
In the purest trading sense today is Friday. The treasury just announced $ 101 billion of new supply which will trade next week.
Dealers, as is their custom, establish outright shorts and hedged shorts, to prepare for the bidding process. Certainly much of that process happens in advance of the auctions but the announcement is often a catalyst.
Today it is a special catalyst as tomorrow is a short working day before the holiday and Monday is a holiday. If you wish to have a starter kit short in place one had better get working on it as there is only scant time before the bidding begins next week.
So I think that the short week/ auction supply dynamic is driving much of this.