Bond Expert: Tuesday Outlook

Prices of Treasury coupon securities are posting small mixed changes in overnight trading with most issues registering marginal declines in yields. Benchmark bond prices declined in late trading after I published my closing piece and the small overnight advance leaves prices inside of the range which prevailed yesterday.There was economic data overnight and most of that data was bond friendly. Data which will be released later this morning in the US will also resonate with economic weakness. At this stage of the year yield changes in response to the data will be minimal unless there is some new shocking piece of information which shows the economy passing through a stage of even deeper weakness. Economic strength in the numbers, if such a number printed, would be dismissed until the market receives a string of such numbers.

Investors also gained some solace and succor overnight in knowing that GMAC is enough of a financial basket case that it qualified for funds under the TARP program. The TARP has done very little in purchasing troubled assets as the political class has wandered quite some distance from original intent of that program when it was first proposed.

The yield on the benchmark 2 year note has declined 2 basis points to 0.76 percent. The yield on the benchmark 3 year notes increased 2 basis points to 0.96 percent. The yield on the 5 year note has edged lower by 2 basis points to 1.44 percent. The yield on the 10 year note slipped one basis point to 2.09 percent and the yield on the Long Bond dropped a basis point to 2.62 percent.

The 2 year/10 year spread widened one basis point to 133 basis points.

Equity markets around the globe are generally higher in overseas trading.

Bloomberg has posted a report that the weak global economy has caused tourism in Australia to tumble to the lowest level since 1989.

Similarly, in Hong Kong hotel occupancy rates at 5 star luxury hotels declined 10 percent in the most recent month.

Barclays economists have issued a dire prediction on the state of the Japanese economy as those dismal scientists forecast that the economy in that country will contract at a whopping 12 percent in Q4. That would be the steepest decline since the oil induced recession of 1974.

A Bloomberg survey of European retail sales posted a gain to 41.4 in December from 40.6 in November. However, any result below 50 indicates contraction and a consumer hunkered down in the deep weeds.

(As an aside, I had reached this point in the writing process when there was a power surge at the Across the Curve corporate headquarters and the light in the room went out and the computer shut down. I had not saved any of this piece and was about to experience a meltdown. But the wonders of modern technology saved me as Microsoft Word has a recovery function and my heart was warmed to see that the engineers made it possible for me to recover my thoughts without ever physically saving the document. So a horrible beginning to the day was averted.)

Inflation in six German states declined and that points to a decline at the national level and should provide some cover for an ECB rate cut.

House prices in the UK plunged 12.2 percent YOY in December. That is the largest decline since record keeping began in 1996.

The US markets will digest housing price data, a consumer confidence report and the Chicago area purchasing managers report on manufacturing in that region. Anecdotally, I can report that it was ungodly frigid when I was there in the several days prior to Christmas.

Comments

[Roger Knights:]

"there was a power surge at the Across the Curve corporate headquarters and the light in the room went out and the computer shut down."

I urge you to do what I have done and acquire an uninterruptible power supply. And not just something that's good for only a couple of minutes, but an industrial strength model that can keep a computer running for hours. (The cost is over $250 last I looked, but used items can be obtained very cheaply at resellers. Then just go to Budget Battery and buy a couple of cheap, reconditioned lawn-mower batteries and swap them in—or have the Budget Battery guy do so for a tenner.) These UPS’s are the only gadgets that totally suppress significant power surges. (They also suppress undetectable minor power surges that put stress on a computer's electronics and shorten their life.)

2008 Dec 30 12:17 PM