Bond Expert: Outlook for an Eventful Tuesday

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 |  About: SPDR Barclays Long Term Treasury ETF (TLO)
by: John Jansen

Prices of most benchmark Treasury securities have posted tiny losses in overnight trading. The Long Bond bucked the trend and is dramatically unchanged.

The yield on the 2 year note has climbed 3 basis points to 0.96 percent. The yield on the 3 year note has also climbed 3 basis points and rests at 1.33 percent. The yield on the 5 year note edged higher by 2 basis points to 1.81 percent. The yield on the 10 year note edged higher by a basis point to 2.77 percent and as I stated earlier the yield on the Bond is unchanged at 3.51 percent.

The 2 year/10 year spread has narrowed 2 basis points to 181 basis points.

Today will be an eventful day. Federal Reserve Chairman Bernanke will get the ball rolling with his testimony regarding the Federal Reserve’s view of what is now a complex, convoluted and constricted financial world. He will say that the economy is debilitated and will remain so for quite some time.

He will also note that the Federal Reserve, in its infinite wisdom, views inflation as an insignificant threat in the near term and indeed he is worried about deflation.

He will be peppered with questions about the credit markets and how they are functioning. (Progress has been made but still in the intensive care ward.)

I am sure he will receive questions or speak to the topic of Federal Reserve purchases of longer dated Treasury securities. I suspect that this is a venue in which he can provide some clarity on the issue.

I am sure he will address the nationalization of the banking system and offer his views on that topic.

This evening President Obama will address the Congress and provide a comprehensive glimpse into his Administration’s views on the economy and he will lay out some blueprint to fix it. I expect that he will lay much of the blame at the feet of his Republican predecessors and will note that it will take more than 100 days to unravel what he sees as a generation of cumulative damage.

The Treasury will begin the cumbersome process of auctioning $94 billion of securities over the next three days with the sale of $40 billion 2 year notes. At yields around 1 percent there should be substantial interest in the paper.

IG 11 is opening 2 basis points wider at 219/222.