Bond Expert: Friday Wrap

Prices of Treasury coupon securities posted solid gains in quite an illiquid post Thanksgiving trading. The bond market will close in two hours at 200PM New York time.

There was some month end buying that fueled the price gains.The yield on the 2 year note slipped 4 basis points to 1.05 percent. The yield on the 3 year note fell 3 basis points to 1.33 percent. The yield on the 5 year note dropped 2 basis points to 1.99 percent. The yield on the 10 year note declined 3 basis points to 2.95 percent and the yield on the Long Bond dropped 5 basis points to a near record low of 3.48 percent. As an aside, the Long Bond carries a 4 ½ percent coupon. With the decline it rates it carries a dollar price of 118 24/32. It is much easier to understand that type of premium when you have a 14 percent coupon than when the coupon is nearly 10 points lower. But these are historic times in which we live.

The 2 year /10 year spread is one basis point wider at 190 basis points.

I had not checked TIPS yields in a while. The 10 year TIPS yields 2.57 percent, which implies that the market expects a negative inflation rate of 0.38 percent on average over the next 10 years. And I want to sell you an interest in the Brooklyn Bridge.

Mortgages widened about ¼ point to swaps today.

Two year swap spreads widened 7 basis points to 109 ¾ basis points. Five year swap spreads widened 1 ¼ basis points to 84 ¼ basis points. Ten year swap spreads widened 1 ¼ basis points to 20 ¾ basis points . Thirty-year spreads widened 1 basis point to NEGATIVE 40 ¾ basis points.

Next week will another interesting week for the markets. There is a purchasing manager’s survey of manufacturing data on and car sales on Tuesday. Wednesday brings the Beige Book and Non Manufacturing ISM. Thursday there is a fresh report on initial claims, and Friday the monthly labor data.

I do not see any relief in those numbers. I guess the key for the week is the reaction of the stock market to the weak data. In the aggregate it will be hard to suggest that the economy has bottomed when one views the totality of this data in conjunction with this week’s data. We will have a chance to observe if the price action in equities was real buying or just happy shorts thanking whichever deity they worship before they reestablish those same positions.

I forgot to mention that Chairman Bernanke will address an audience in Austin Texas at lunchtime Monday. He will discuss the economy.