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I am recommending a 2s-10s flattener a third time.  Currently:

2-year yield: 109 bps

10-year yield: 386 bps

2s-10s spread: 277 bps

I recommended the first flattener on Feb 9 at 282 bps and closed the recommendation on March 5 at 276 bps.  I recommended the second flattener on Mar 8 at 283 bps and closed the recommendation on Mar 12 at 274 bps.

FX Update:

I recommended buying USD/JPY on Mar 3, 2010 when USD/JPY was 88.72.  Right now, USD/JPY is 92.80.   This trade idea could also be implemented by buying the ETF YCS.  YCS was 19.31 on Mar 3; it is now 21.10.

http://www.jlninterestrates.com/2010/03/barclays-says-curve-steepener-still.html

Barclays Capital strategists say in a written report that they have fine-tuned their rates forecast, highlighting the strength in the front end and their continued expectation of a selloff in the long end, led by a stronger economy and supply-demand imbalance. Recent TIC data also highlight that China has resumed diversification away from USD securities, they write.

In the report, they maintain their curve-steepening view. A stronger-than-consensus payroll report seemed to support the view that the U.S. economy continues to turn around, they write.

I think the curve will flatten while Barclays thinks it will steepen.  It is possible for both of us to be right.  The curve might steepen in the short-term, but then flatten over a longer time horizon.

The curve has flattened since I re-opened my flattener recommendation, but it may well become steeper in the short-term.

2-year yield: 94 bps

10-year yield: 373 bps

2s-10s spread: 267 bps

FX Update:

USD/JPY is now 90.51 (vs. 88.72 when I recommended buying it) and YCS is 20.09 (vs. 19.31 when I recommended buying it).

http://www.reuters.com/article/idUSTRE6234TA20100305

A second senior Federal Reserve official on Thursday joined the ranks of those doubting whether the Fed should continue to commit to hold rates exceptionally low for an extended period, a sign pressures are building to drop the wording.

The curve continues to flatten.  The 2-year yield is 86 bps and the 10-year yield is 3.61 bps, so the 2s-10s spread is now 275 bps.  The dollar continues to strengthen against the yen: USD/JPY is now 89.24.

http://www.bloomberg.com/apps/news?pid=20601068&sid=alAMN_KVoQ6M

Initial jobless applications fell by 29,000 to 469,000 in the week ended Feb. 27, in line with the median forecast of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance decreased to the lowest level in a year, while those receiving extended benefits climbed.

So far, my trade ideas are performing well.  2-year notes now yield 86 bps and 10-year notes now yield 364 bps, so 2s-10s has flattened to 278 bps (I recommended a 2s-10s flattener at 282 bps).  Two days ago, I wrote that I thought that 2-year yields would go higher.  2-year notes were yielding 81 bps two days ago and now they yield 86 bps.  I wrote a bullish post on USD/JPY yesterday when the exchange rate was at 88.72; now USD has strengthened vs. JPY to 89.01.  Two and three days ago, I highlighted the improving employment picture (“Firms Move Gingerly to Rescind Salary Cuts” and “The unemployment rate is starting to turn”).

Today’s initial claims report is worth paying attention to, but tomorrow’s nonfarm payrolls report is more important.  I think we will see further confirmation of an improving employment picture, but this is by no means assured.  A weak payrolls number could easily turn my winning trade ideas into losers.  However, 2s-10s, 2s, and USD/JPY are at such extreme levels that even if tomorrow proves to be a bad day for my trade ideas, I feel confident that they will pay off eventually.