Bond Expert: Tuesday Outlook

Prices of Treasury coupon securities posted minuscule mixed changes in overseas trading. The yield on the benchmark 2 year note slipped one basis point to 1.69 percent. The yield on the 5 year note also slipped one basis point and it trades around 2.78 percent currently. The yield on the benchmark 10 year note increased one basis point to 3.85 percent. The yield on the Long Bond edged two basis points higher to 4.28 percent.The 2 year/10 year spread widened to 216 basis points, partially reversing some of the narrowing which occurred yesterday.

As I review the overnight news, there does not appear to be any blockbuster information greeting stateside participants as they gingerly arrive at their work stations this morning.

Equity markets around the globe were mixed. In Asia the Hang Seng slipped nearly 2 percent while the Nikkei and the Australian Index each gained better than 3 percent.

European markets are generally higher, though there are very small losses in the UK as well as in Spain.

The futures markets indicate that the US market will open with very modest losses following the sharp rally of yesterday.

Earnings news seems mixed. Sun Microsystems (JAVA) and Texas Instruments (TXN) missed estimates of analysts and that news has raised some concerns for the technology sector.

In the wee small hours of the morning, chemical company DuPont (DD) reported earnings and lowered its full year forecast citing weak demand.

American Express (AXP) reported lower earnings yesterday but did manage to beat estimates.

Minneapolis Federal Reserve Bank President Stern will speak on the economy. He is lined up on the hawkish side of the FOMC so it will be interesting to view his remarks.

And since there is a dearth of high profile data today, we can watch the weekly reports on retail sales for some insight onto the consumer.

Also:

European money market rates have dropped to levels last observed prior to the Lehman bankruptcy.

IG 11 is opening 187/189, which is slightly wider than the 186 1/2 close late yesterday.

Libor has opened lower again today.  Overnights have declined 23 basis points to 1.28 percent, one week rates dropped 28 basis points to 2.4375 percent, one month fell 22 basis points to 3.5275 and three month Libor set 22 basis points lower at 3.77125

Pretty Libor table:

                10/21        10/20      Change                     
OVERNIGHT       1.28125      1.51250    -.23125
1 WEEK          2.43750      2.71875    -.28125
2 WEEKS         2.76875      3.08125    -.31250
1 MONTH         3.52750      3.75125    -.22375
2 MONTH         3.69750      3.93375    -.23625
3 MONTH         3.83375      4.05875    -.22500
4 MONTH         3.77125      3.99250    -.22125
5 MONTH         3.73125      3.90125    -.17000
6 MONTH         3.70000      3.82875    -.12875
9 MONTH         3.66875      3.76875    -.10000
12 MONTH        3.60188      3.71250    -.11062

Repo: Currently General Collateral is trading 50 cents bid and 30 cents offered but is expected to drift higher as the day progresses. As it glides toward the Federal Funds rate that is an outward sign that financial stress is diminishing and that Polonius’ advice to his son is being ignored (thankfully ) as lenders return to the market.One trader noted that trading volumes in the repo market this morning were markedly higher. The same trader noted that the number of issues trading at zero is only about ½ of what it has been in recent days.

The coordinated financial blitzkrieg staged by the central banks is having the desired effect and stress and strain in the key short term markets is fading.

Comments

[Pipo:]

Nice recap of bonds trading.

regards

2008 Oct 21 12:33 PM