Bond Expert: Friday Outlook

Prices of Treasury coupon securities rebounded in overnight trading as the market breathed a sigh of relief that this initial round of supply from the Treasury has been tucked away by dealers and investors. Monetary ease and a stock market decline in Japan helped, too. In Europe, inflation slowed to 3.2 percent YOY from 3.6 percent and unemployment remained steady at 7.5 percent. Those reports fanned the hope that the ECB would slash short rates as much as 50 basis points at its upcoming meeting.

The yield on the 2 year note declined 2 basis points to 1.54 percent. The yield on the 5 year note dropped 8 basis points to 2.75 percent. The yile on the benchmark 10 year note tumbled 8 basis points to 3.89 percent and the yield on the Long Bond fell 7 basis points to 4.26 percent.

The 2 year/10 year spread narrowed 8 basis points to 235 basis points.

Stocks in Tokyo dropped 5 percent overnight as a slump in economy has led companies to slash earning estimates. Mitsubishi UFJ (proudly a part owner of former investment bank Morgan Stanley) and Mizuho slashed forecasts as bad loan expense rises. Nikon and Mazda (MZDAF.PK) foresee lower earnings and slashed forecasts.

UK bank Barclays (BCS) avoided the UK bailout program and borrowed nearly $12 billion from a variety of sources in the Middle East. They will pay as much as a usurious 14 percent for some of the funding.

There is quite a bit of data in the US today with ECI, personal income and spending, Michigan sentiment and Chicago purchasers on the docket.

I am sorry I was away from the corporate headquarters yesterday but I am back in the saddle today.

Libor

Libor continues to plunge. Overnight Libor set this morning at 41 basis points versus 73 basis points yesterday.

Three month Libor declined to 3.03 from 3.19 yesterday.

Comments

[stocks:]

John good stuff

2008 Oct 31 11:03 AM

[Bill Herbert:]

WE ARE ON THE CUSP OF A HUGE EQUITY RALLY.

Bonds will get killed going forward.

EOM

2008 Oct 31 11:35 PM

[Emerald:]

Copperbaron: You must be talking your own book. Yes, we can have a bear market rally followed by another downdraft in stocks. Eanings are not fully discounted and analysts are still too high on 2009 forecasts. We are still in a deflationary environment for the next six months. Once the fed's money has an impact, inflationary forces will start to impact the economy. Investment grade bonds and high yields are excellent investments now.

2008 Nov 01 02:04 PM