Prices of Treasury coupon securities are retreating in overnight trading as the prospect of an agreement on an auto industry bail out, equity market stability and a dollop of supply today from the Treasury combine to deflate sentiment. The yield on the 2 year note has climbed 4 basis points to 0.88 percent. The yield on the 3 year note has jumped 5 basis points to 1.16 percent. (The taxpayers will offer investors an opportunity to purchase $28 billion newly minted three year notes later today.) The yield on the five year note has edged higher by 6 basis points to 1.66 percent. The yield on the 10 year note rose 6 basis points to 2.70 percent and the yield on the Long Bond is higher by 5 basis points at 3.10 percent.
Equity markets around the globe have stabilized with sharp gains in Asia and mixed results in Europe. Trading in futures markets indicates that US markets should open with modest gains today.
Reports in the press indicate that negotiators have reached an agreement in principle on an auto bailout of $15 billion and that the process of Congressional approval will begin today. The bail will sail through the House but faces uncertain prospects and the possibility of filibuster in the Senate.
The Wall Street Journal reports that the Federal Reserve is mulling a request for the authority to issue debt. When the Federal Reserve sells securities it drains reserves from the banking system. It would afford them the opportunity to more easily manage reserves and withdraw liquidity quickly if and when that becomes an appropriate policy goal.
That begs the question of whether we want another “GSE” traipsing through the market issuing paper. It would only seem like a worthwhile endeavor, if the Congress ensured tight controls and severely circumscribed the authority. Now that I write that it doesn’t seem like such a great idea!
Global economic data released overnight provide new evidence of the depth of the global contraction.
In China exports fell for the first time in 7 years. Exports declined 2.2 percent in November. More ominously domestic demand cratered as imports fell nearly 18 percent. Bloomberg keeps records on this stuff and the news service reports that the import decline is the largest since they began keeping such records in 1995.
Rio Tinto is the 3rd largest mining company on the planet. The sharp fall in commodity prices has done that company great harm. It has announced plans to lay off 14,000 workers, curb capital spending by $ 5 billion and sell assets.
Capital spending is faring no better in Japan as the recession forced a decline in machine tool orders of 4.4 percent in October.
Citigroup (C) will cut 1000 jobs at its retail brokerage unit in Japan.
In France and Italy IP tumbled in October.
