Bond Expert: Wednesday Outlook

Prices of Treasury coupon securities are retreating in overnight trading, and as I scout the news I am hard pressed to discern a solid reason for the setback. So I will apply the received wisdom of my three decades of watching this and suggest that the bond market has run too far, too quickly and that to entice buyers at these levels evidence of an even deeper economic calamity is necessary.

This might even be a circumstance in which the inordinate supply needs of the Treasury play a role as the Treasury will announce on Monday a reopening of the 10 year note as well as a fresh batch of 3 year note. Participants expect something on the order of $15 billion 10 year notes and $25 billion 3 year notes.

The yield on the 2 year note has jumped 7 basis points to 0.96 percent. The yield on the 3 year note has climbed 9 basis points to 1.17 percent. The yield on the 5 year note has vaulted 9 basis points to 1.72 percent. The yield on the 10 year has increased 7 basis points to 2.74 percent. The yield on the still investment grade 30 year bond has edged higher by 4 basis points to 3.22 percent.

The 2 year /10 year spread is unchanged at 178 basis points.

Economic data released overnight were weak but I guess not weak enough to satisfy potential buyers.

In Europe the composite Purchasing managers index tumbled to 38.9 from 43.6.

In the UK the services sector contracted at the quickest pace in 12 years as the index fell to 40.1 in November from 42.4 in October.

The Eurozone service sector slipped to 42.5 in November from 45.8 in October.

Eurozone retail sales dropped 0.8 percent in October and have declined 2.1 percent from year ago levels.

Asian equity markets posted modest gains overnight and European markets are posting modest losses.

In the US we wait for information on the service sector.

IG11: The index is opening six wider at 259/265.

Libor

Libor US$ Fixing
12/03 12/02 Change
OVERNIGHT .88125 1.00375 -.12250
1 WEEK 1.18625 1.19875 -.01250
2 WEEKS 1.28250 1.29000 -.00750
1 MONTH 1.89000 1.89875 -.00875
2 MONTH 2.05125 2.05875 -.00750
3 MONTH 2.20125 2.21000 -.00875
4 MONTH 2.33375 2.33875 -.00500
5 MONTH 2.44000 2.45500 -.01500
6 MONTH 2.55625 2.56875 -.01250
9 MONTH 2.62125 2.63250 -.01125
12 MONTH 2.70375 2.71250 -.00875