Friday's Bond Outlook: Yield Curve Flattening Continues

Prices of Treasury coupon securities registered mixed results in overnight trading. Since a body in motion tends to stay in motion, the recent trend of flattening of the yield curve remained in force as short maturities posted modest yield increases while longer maturities posted modest yield declines.

The yield on the 2 year note has increased one basis point to 1.10 percent. The yield on the 3 year note has edged higher by one basis point to 1.37 percent. The yield on the 5 year note slipped one basis point to 2.01 percent. The yield on the 10 year note tumbled nearly four basis points to a paltry 2.94 percent. The yield on the 30 year bond fell 3 basis points to 3.49 percent. (The yield on the 10 year bond is the lowest in modern bond market history and the yield on the 390 year remains a whisker away for the 3.45 percent low attained in a panicky trade a week ago.)

The 2 year/ 10 year spread is 184 basis points.

The 2 year/5 year/30 year spread has narrowed to just 57 basis points.

Economic data released overnight was uniformly weak.

Data in Japan manifested a deepening recession. Factory output fell 3.1 percent from September and household spending slid 3.8 percent. Companies plan to cut output by over 6 percent this month.

Panasonic slashed its full year earnings forecast by 90 percent citing a huge drop in demand for flat screen TVs.

In New Zealand home building approvals slumped to a record low in October.

European inflation slowed the most in two decades as it fell to 2.1 percent in November from 3.2 percent in October.

European unemployment rose to its highest level since January 2007 as it increased to 7.7 percent from 7.6 percent.

Bloomberg reported, also, that as we were eating turkey yesterday, European confidence fell to 15 year lows and retail sales fell the most in 5 years.

The US bond market will close at 200PM today and there is no meaningful economic data on tap.

Today is month end, and with the extensions to the index the flattening trade should gain some additional momentum.

Comments

[joes:]

While this is an interesting set of data that I thank Mr. Jansen for compiling I have to scold him for one statement, "Since a body in motion tends to stay in motion,....."

As an engineer it is disturbing to see the continuing confusion of the laws of physics and economic principles. The laws of momentum have proven to be useful, rockets are launched accurately, bridges stand and automobiles stop because of our understanding of these principles.

When people like Mr. Jansen misapply them to social structures such as economics you start to believe things like stocks will always go up, house prices will always rise and tulips will become ever more valuable.

It is clear that these areas do not follow the same laws and to think otherwise has proven to be very painful and it is a disservice to his readers to make such a statement, especially in the midst of the repudiation of those approaches that we are living through today.

2008 Nov 28 11:39 AM

[K Ackermann:]

For the love of Christ, Joe!

2008 Nov 28 04:05 PM

[K Ackermann:]

What was he supposed to say, "because a dynamic system with continually changing variables can only be simulated using Monte Carlo methods et al,..."

2008 Nov 28 04:09 PM