Bond Expert: Thursday Outlook

Prices of Treasury coupon securities are posting mostly muffled gains in overnight trading. Equity markets around the globe followed the sullen example of the US market of yesterday and most major markets are manifesting sizeable losses. Economic data and corporate announcements released overnight illustrate a global economy in a deep bind as earnings forecasts reductions are ubiquitous.

In Asia the Nikkei dropped 6.5 percent and the Hang Seng dropped 7 percent. Australian stocks fell 4 percent.

In Europe stocks have fallen between 3 percent and 4 percent.

Stock futures are indicating that the slide in US equities which began yesterday will continue this morning.

Why so much gloom and doom? Because so many companies are issuing gloomy proclamations about near term economic prospects.

Cisco (CSCO) forecast its first revenue decline in five years.

Goldman Sachs (GS) and Citibank (C) are in the process of firing about 12,000 workers.

Toyota (TM) forecast its biggest profit decline in 18 years as sales slump and the strong yen eats into the value of those sales.

Isuzu Motors suffers a similar fate and notes that overseas truck sales are plummeting. Thailand is one of its biggest markets and sales have fallen there for each of the last four months.

German manufacturing fell by a record 8 percent in September from August. It was the deepest drop for manufacturing since record keeping began for a reunified Germany in 1991.

The Bank of England slashed rates 150 basis points and accompanied that action with a gloomy assessment of the global economy.

UK home prices fell at the fastest pace in 25 years. Prices are down 14.9 percent versus the same month a year ago which is the steepest decline in the 25 years since record keeping began.

The yield on the benchmark 2 year note has slipped two basis points to 1.32 percent. The yield on the benchmark 5 year note has edged lower by 3 basis points to 2.47 percent. The yield on the 10 year note is a basis point lower at 3.69 percent and the yield on the Long Bond is unchanged at 4.18 percent.

The 2 year/10 year spread is 237 basis points this morning.

The US market braces for Initial Jobless claims as well as Q3 Productivity this morning. Participants will closely observe the claims data for signs that the job market is worsening.

Full Libor chart

Libor US$ Fixing
11/06 11/05 Change
OVERNIGHT .32750 .32250 .00500
1 WEEK .85000 .93625 -.08625
2 WEEKS 1.18125 1.23750 -.05625
1 MONTH 1.76750 1.95625 -.18875
2 MONTH 2.24875 2.41250 -.16375
3 MONTH 2.38750 2.50625 -.11875
4 MONTH 2.48875 2.62500 -.13625
5 MONTH 2.60125 2.72375 -.12250
6 MONTH 2.69875 2.82375 -.12500
9 MONTH 2.78750 2.90250 -.11500
12 MONTH 2.84125 2.96875 -.12750

Comments

[dr.doolittle:]

so what's the outlook for the bond market, then? it's not as though there exists a problem of transperency in the bond market. is there any doubts about what the political class has done and will continue to do? When last I checked PIMCO was celebrating a 1 trillion dollar federal deficit. Is that good news, Mr. Bond?

2008 Nov 07 09:40 AM