Bond Expert: Monday Outlook

Prices of Treasury coupon securities are sagging in overnight trading as news that China will spend nearly $600 billion to stimulate its slumping economy sparked robust rallies in global stock exchanges. There is also the small matter of the $55 billion refunding package which begins today with the sale of $25 billion in 3 year notes by the Treasury.The yield on the 2 year note climbed 6 basis points to 1.39 percent. The yield on the 5 year note has jumped 7 basis points to 2.63 percent. The yield on the benchmark 10 year note has edged higher by 4 basis points to 3.83 percent. The yield on the Long Bond has climbed by 2 basis points to 4.29 percent. (At this early hour I do not have a quote on the WI 3 year.)

The 2 year/ 10 year yield tightened 2 basis points to 244 basis points.

The 2 year/5 year/30 year butterfly has narrowed to 42 basis points from 48 basis points in late trading Friday.

In other news, AIG took another outsized and outlandish loss in Q3 and restructured its deal with the taxpayers. I will defer to the Bloomberg headline which says that the rescue package for these miscreants who sorely lacked any financial fluidity or facility is now $150 billion.

It is a sad reflection on the reality of the times that the markets have become inured to such stories and that the story itself does not lead commentaries on the backdrop for today’s trading. It is odd that this story is a secondary theme and not the lead story.

In Japan machine tool orders tumbled 10.4 percent in Q3 (equaling an old record) as foreign demand slumped.

In the UK, producer prices fell 1 percent in October (the fastest pace since record keeping began in 1986) as the economy slipped into recession.

Writedowns of financial assets abound around the globe. In addition to the financial futility recorded at AIG, HSBC announced that its woes in the US persist at it took $4.3 billion on US assets in Q3.

Dresdner bank wrote down $835 million in Q3 and Allianz said that if equities remain at these levels it would force into mar down assets by $1.3 billion.

There is no economic data set for release in the US today. The market will focus on the 3 year auction and any kernels of truth which flow from the Bush/Obama conclave.

Libor chart

Libor US$ Fixing
11/10 11/07 Change
OVERNIGHT .35000 .33125 .01875
1 WEEK .83750 .86250 -.02500
2 WEEKS 1.07875 1.11250 -.03375
1 MONTH 1.53875 1.62250 -.08375
2 MONTH 2.10375 2.15875 -.05500
3 MONTH 2.23500 2.29000 -.05500
4 MONTH 2.37000 2.40500 -.03500
5 MONTH 2.49625 2.51750 -.02125
6 MONTH 2.62125 2.63875 -.01750
9 MONTH 2.71875 2.73500 -.01625
12 MONTH 2.79250 2.80000 -.00750

Comments

[dr.doolittle:]

The story is that the Russians are going to devalue the ruble. If I were a European wouldn't I find that scary and want to by US Treasuries? And if I were China and Japan isn't the most terrifying prospect that Americans not only can no longer spend but actually start saving? It's not like the government is doing anything to promote savings among the people to date--bailouts of deadbeat corporations is obviously money down a rat hole which will lead to higher taxes and, of course less savings. Once Goldman Sachs is booted out of the White House that could improve. Could that provide support for bonds as well? And of course the baby boomers are retiring... that should be very supportive of bonds, provided they have any money left. And banks...well, they appear on the verge of a massive failure--if they wish to preserve capital only Government Treasuries seems to provide any security there. And there's a war going on which means continued supply for the forseeable future while at the same time providing some economic activity...Hmmm, now I know why I'm listening to "the bond guy."

2008 Nov 11 01:06 PM