Bond Expert: Monday Outlook

Prices of Treasury coupon securities have taken a random walk in overseas trading. The yield on the benchmark 2 year note is unchanged at 1.56 percent. The yields on the 5 year note and the 10 year note have declined by 2 basis points to 2.81 percent and 3.95 percent, respectively. The yield on the 30 year bond has edged higher by 3 basis points to 4.36 percent. The 2 year/10 year spread rests at 239 basis points.

Equity markets around the globe performed well overnight. Tokyo was closed but the Hang Seng jumped 2.7 percent and the Australian market climbed 5 percent.

European markets are on balance higher by about 0.7 percent, though the Spanish market has dropped 0.9 percent and Sweden has jumped 3.6 percent.

US stock futures had posted sharp gains early in the evening but those gains have since been erased and it looks to be a flat open when trading resumes at 930AM.

Economic news from around the globe remains gloomy.

The European Commission reports that Europe entered a recession this year and growth will be minimal in 2009.

Soc Gen (SCGLY.PK) reported that profits fell 84 percent in Q3 because of credit related losses.

Commerzbank (CRZBY.PK) will take a nearly $11 billion capital infusion from the German government following a Q3 loss. The stock gained handily following that news.

In Australia housing prices, retail sales and manufacturing all demonstrated declines.

In the UK a measure of manufacturing rose but holds at depressed levels near 41.5 on an index in which 50 is a breakeven level.

In the US today traders will confront the monthly ISM data, construction spending and the monthly auto sales data. Pundits expect weakness in each category.

This week is replete with trading data points. The Treasury will announce the terms of the refunding and they will describe any changes to the financing cycle. The consensus view holds that they will reprise a quarterly 3 year note beginning at once. Market participants also expect that the frequency of 10 year issuance will increase from the present eight times per year to monthly auctions.

The election should be an influence. I think that a major victory for Senator Obama is reflected in the current level of prices. Market participants will be waiting to see if this is a landmark on the order of the Ronald Reagan victory in 1980 or the FDR victory in 1932. Will it signal the end of the conservative impulse which has guided America since Richard Nixon rose from the ashes in 1968, and will it usher in a new liberal hegemony to replace the conservative ethic which has dominated for so many years?

Finally, Friday will bring the monthly labor data. Most other indicators of economic activity have been diving lately. The average monthly job loss this year has been running less than 100K per month but I believe this is the month in which the true effects of the credit crunch manifest themselves. I think that job losses will be somewhere in the vicinity of 250K when reported on Friday morning.

IG11

The IG 11 is opening 198/202. The last level I observed on Friday was around 203.

Libor

Libor US$ Fixing
11/03 10/31 Change
OVERNIGHT .38750 .40625 -.01875
1 WEEK 1.04375 1.31875 -.27500
2 WEEKS 1.45000 1.67500 -.22500
1 MONTH 2.35750 2.58125 -.22375
2 MONTH 2.76000 2.96625 -.20625
3 MONTH 2.85875 3.02625 -.16750
4 MONTH 2.93500 3.06000 -.12500
5 MONTH 3.01250 3.08750 -.07500
6 MONTH 3.08500 3.12125 -.03625
9 MONTH 3.14000 3.15563 -.01563
12 MONTH 3.20750 3.17375 .03375