10yr Treasury Auction and Wall Street Compensation

In 10 minutes time, Wall Street will underwrite $19 billion 10yr notes. In the face of this supply, a major topic on the agenda today is Wall Street compensation.

Secretary Geithner announced earlier today that the SEC would be involved in crafting “say on pay” legislation. This legislation will focus on trying to align risk and compensation, providing greater disclosure on compensation, and creating proper incentives within the financial industry. The devil will be in the details.

Make no mistake, though, the focus on this issue will serve to lessen overall compensation.

Will Wall Street send a message to Washington that they are not happy with this proposal? How might they do that?

Fade their bids on the 10yr auction. That is, lower the price on the auction thus charging Uncle Sam a higher rate of interest.

Check back shortly and I will report on auction results.

As of 12:55pm, the 10yr Treasury note is trading at a 3.95% rate, which is higher by approximately 5 basis points relative to last evening’s closing level.

Update: Auction Results and Market Reaction:

The 10yr auction did “tail” and was underwritten at a 3.99%. The “bid to cover” ratio was a very respectable 2.62 times. That said, the bidders priced in a healthy discount to buy these notes.

The higher Treasury rate will clearly have a knock on effect across all sectors of the bond market but especially the mortgage market. As rates move higher, the affordability of mortgages and housing overall lessens. To this end, mortgage applications fell last month.

Nobody on the street would ever open Pandora’s Box and openly confess to fading a bid on Uncle Sam. That said, I view today’s price action as providing a hint that the Wall Street crowd is not happy with Washington.

Wall Street will have another opportunity to express their displeasure tomorrow as Uncle Sam will be selling $11billion 30yr bonds.

How is the equity market responding to these higher rates? Earlier today the major market equity averages were higher by 1%. We have seen a complete reversal of that upward move and they are now down by 1% on the day.

Lots of hills, valleys, and undulations as we navigate the economic landscape!!

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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