Bond Expert: Friday Outlook

| About: SPDR Barclays (TLO)

Prices of Treasury coupon securities have posted small and meaningless mixed changes as market participants await the monthly labor report later this morning. The yield on the benchmark 2 year note has edged higher by a single basis point to 1.29 percent. The yield on the 5 year note has also climbed one basis point to 2.47 percent. The yield on the benchmark 10 year note is unchanged at 3.69 percent. The yield on the 30 year bond has slipped one basis point to 4.18 percent.The 2year/10 spread is one basis point tighter at 240 basis points.

The main focus of market participants today will be the employment report which is scheduled for release at 830AM New York time. The consensus expects that the Labor Department will report that businesses shed 200K workers in October and that the unemployment rate rose to 6.3 percent from 6.1 percent in September. [Update: -240,000 workers, 6.5%.]

In a research note late yesterday, economists at UBS had an interesting historical perspective on job losses in the current slowdown and compared those losses to losses in the several mild recessions of the last three decades. Here is their analysis for your perusal:

More on the labor market. At 6.1% in September, the unemployment rate is already up 1.7 points from the low of 4.4% in early 2007. We expect it will reach 7.8% by Q409, implying a 3.4 point rise in total. That would match the second largest cyclical rise in business cycles since 1950; the largest was a 4.1 point increase in the early 1970s (see table).

With the level of total payrolls around 138 million at the end of 2007, the 84,000 per month average decline so far this year equates to 0.7% at an annual rate. The next few reports are likely to show much more weakness. Payrolls fell at a 1.8% annual rate, on average, during the eight months of the 2001 recession (-167,000 per month, equivalent to a -205,000 per month pace in 2008), 2.2% during the eight months of the 1990-91 recession (equivalent to 250,000 per month today), 2.3% during the 16 months of the 1981-82 recession, and 2.1% during the six months of the 1980 recession.

The investment bank viewed the department stores sales data released yesterday and paint a rather bleak picture on consumption. They expect that total retail sales, when reported next week, will have dropped 2.8 percent in October and that retail sales ex autos will have dropped 1.9 percent in October.

If that prediction is on the mark, then consumption would be declining at an annualized rate of 5.5 percent as Q4 begins. Consumption had fallen at a 3.3 percent clip in Q3.

President-elect Obama meets with his economic wise men this morning to discuss the economy and will hold the first news conference of the interregnum this afternoon. If the labor data is as ugly as many suspect, them the President designee’s words could carry some weight and move the market if he chooses to comment on policy options.

IG 11

IG 11 is opening at 193 1/2 which is about 1 tighter than the previous close.



Libor US$ Fixing
11/07 11/06 Change
OVERNIGHT .33125 .32750 .00375
1 WEEK .86250 .85000 .01250
2 WEEKS 1.11250 1.18125 -.06875
1 MONTH 1.62250 1.76750 -.14500
2 MONTH 2.15875 2.24875 -.09000
3 MONTH 2.29000 2.38750 -.09750
4 MONTH 2.40500 2.48875 -.08375
5 MONTH 2.51750 2.60125 -.08375
6 MONTH 2.63875 2.69875 -.06000
9 MONTH 2.73500 2.78750 -.05250
12 MONTH 2.80000 2.84125 -.04125