5/4/09 US Bond Update

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5/4 Midday Bond Update

Good Morning!
Interesting action in the bond markets today, here's some quick notes/observations from the trenches:

30Y - Seeing the most action this morning, early in the morning we were higher, then back almost 1/2 handle lower from the previous day's levels. Currently the 30Y is leading the charge higher.

Sources note that the Fed is actively targeting buybacks in the 2016-2019 maturities, watch the 5/10 yr bonds for action. More than likely these buybacks will be targeting off-the run securities, so I expect any mess left by the Fed in terms of dislocations will begin to be cleaned up by relative value players in the space.

Agency Mortgage buyers stepping up their pace into the afternoon, we've seen mortgages catch a fairly good bid, however due to Tsy action, the basis has narrowed a bit. Indicative pricing @ 7.87 on my screens now.

The basis revival is continuing (or looks like it) with more people stepping up to the plate in purchasing Agency MBS's.

The curve is seeing flattening around midday. 2/30, 10/30, 5/30 and 5/10 all flatter across the board at this time.