Morning Recap: We heard big flows once again y'day, with much better buying of US bonds on weakness, good mortgage selling of 5s and 10s, and good late day real money buying of 5s 10s and bonds. The big steepening of 5s / 10s played havoc with 10 year note futures longs, as nervousness about a switch in the CTD drove Nov 14's about a basis point richer against 5's and off the run 10s, and left futures contracts in the dirt. 2s found a late NY bid as Moody's cut FGIC to A3 from Aaa. In Tokyo, USTs were a smidgen higher on modest Japanese RM buying of 3yr and 10yr. There was a good bid in the front end. In London, they came off on soggy Europe, but we're off the highs as EGBs and Gilts find good RM demand again. There's been better Asian CB and Japanese RM buying of longs. Bunds opened lower in line with USTs, ground lower in early trade on lack of bids, but long-end bids on the street materialized and we're now at the higher end of the morning range. Gilts have put in a strong performance on UK RM demand, mainly long-end- some accounts' have been spooked by FT story today (on longetivty). There's been some buying of the wings on screen and better buying Gilt/Bund. Y'day also saw better domestic buying of longs, and some LDI flow. Long weekend in US should help underpin USTs. We're listening out for some PAYing needs for convexity types that lent on the mkt y'day, but generally there's better demand (again) out there, from Japanese RM, Asian CBs, US and Eur RM accounts. Attention will be paid on the IP today, for an early peek on whether we're in a recession or not- economists' look for the weakness to persist with a 0.1% decline in production in Jan, which would push the capacity utilization rate down to 81.2% >>> USTs: BETTER BUYING. Asian CB buying 10yr and 5yr (decent- drive by)(. Asian and Japanese RM buying long-dated paper and spec buying US vs EUR in 10s (decent size- both unwinds and reversals being established) USD swaps: Swap spreads widened substantially across the curve yesterday, by 6.0 bp across most of the curve and closer to 5.0 bp in the super long end. 3m Libor set flat from Wednesday, and 3m L-FF widened 3.5 bp, the monoline downgrade news (FGIC) and widening credit spreads likely added to the front-end widening. There was extreme mortgage weakness indicative of convexity-related duration shedding, with current-coupon mortgage LOASs widening about 10 bp. The sharp upswing in vol is also consistent with the theme of convexity paying. US Swaptions: Vols spiked across the surface in a classical convexity-driven steepening sell-off. Long tails were especially bid on on high realized volatility and gamma buying from mortgage hedges. The 3m10y was up by 5.7 bpv, while 3m30y was up by 8 bpv, reaching 141.3 bpv, a level previously seen only in 1998. Vega demand against mortgages pushed vega by 3.0-3.5 bpv in all tails. EGBs: Bunds opened lower in line with USTs, ground lower in early trade on lack of bids, but long-end bids on the street materialized and we're now at the higher end of the morning range. Gilts have put in a strong performance on UK RM demand, mainly long-end- some accounts' have been spooked by FT story today (on longetivty). There's been some buying of the wings on screen and better buying Gilt/Bund. Y'day also saw better domestic buying of longs, and some LDI flow. Short-sterling - hearing good interest in REC 1y1y GBP swaps. Further reversals in GBP/EUR front-end seen to thru futures (Strling/bors). Gilts see UK RM buying and FM spooked on FT story.
Now it makes sense! So there were more sellers than buyers so it went down and then more buyers than sellers so it went up
Damn!!! I was also wondering what the hell was going on, that explains everything now. So, more buyers, it goes up!!! Thx!!