Monday Open: Weaker

On Friday I said I was bearish on the Treasury market. Fed Funds will be 5.5% either by August or September, and I'm not ready to bet on 40bp of inversion between FF and 10yr. Too many bond market buyers are interested in carry first, everything else second. Until people start talking seriously about Bernanke cutting rates, a deep inversion is unlikely. Anyway, we're opening lower. I'd sell every part of the curve up to 5.25%. Size of the 10yr TIPS auction is announced today, sells on Thursday.

Corporates are mostly unchanged, except median and telecom are a bit wider. I see such benchmark issues as CBS '12's 6bp wider at 103, TWX '12's 4bp wider at 107, T '14's (old SBC issue) 3bp wider at 112, all on the offer side. I like corporates to slowly tighten this week.

MBS is opening slightly better vs. the 10yr. I see FNMA and FHLMC 5.5% outperforming the 10-year by 4 ticks. I like MBS long-term for the carry, but I'd bet on wider MBS spreads in the near term.