Bond Expert: Thursday Outlook

Prices of Treasury coupon securities have surged, and since the inverse relationship between price and yield has not become unmoored, interest rates have plummeted to new lows as this incredible financial saga continues.

There has been a group orgy of rate cutting overnight. I have never mentioned the Indonesian Central bank before, but that organization has trimmed its base rate to 9.25 percent from 9.5 percent. The Swedish Riksbank slashed rates 175 basis points to 2.00 percent. The Bank of England acted decisively to lower rates by 100 basis points to 2.00 percent. By the time I finish writing this piece the ECB will have acted and analysts expect the ECB to lower rates by 50 basis points to 75 basis points.

The yield on the 2 year note has dropped 4 basis points to 0.84 percent. The yield on the 3 year note has declined 4 basis points to 1.03 percent. The yield on the 5 year note has dropped 6 basis points to 1.55 percent. The yield on the 10 year note has declined 10 basis points to 2.56 percent. The yield on the 30 year bond has dropped 10 basis points to 3.06 percent.

I believe that each of those yields is a modern era low.

The 2 year/10 year spread has tumbled to 172 basis points. Three weeks ago during the refunding week, that spread was in the low 250s.

Economic data released overnight are once again dismal. Eurozone GDP declined 0.2 percent in Q3 and is up 0.6 percent YOY.

Credit Suisse announced a $2.5 billion loss and will declare 5300 workers redundant. Nomura will similarly classify 1000 workers.

Home prices in the UK fell the most since 1992, declining by 2.6 percent in October and 16.6 YOY.

In the US participants await the weekly jobless data which prognosticators expect will show that the job market remains gloomy.

Chairman Bernanke speaks to a conference on housing and housing finance. I believe that will be at 1115AM New York time.

Libor

Libor US$ Fixing
12/04 12/03 Change
OVERNIGHT .51875 .88125 -.36250
1 WEEK 1.05625 1.18625 -.13000
2 WEEKS 1.24750 1.28250 -.03500
1 MONTH 1.87625 1.89000 -.01375
2 MONTH 2.04375 2.05125 -.00750
3 MONTH 2.19250 2.20125 -.00875
4 MONTH 2.29500 2.33375 -.03875
5 MONTH 2.40188 2.44000 -.03812
6 MONTH 2.52000 2.55625 -.03625
9 MONTH 2.57875 2.62125 -.04250
12 MONTH 2.64875 2.70375 -.05500