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Prices of Treasury coupon securities are registering solid gains in overnight trading as the global financial crisis and associated economic contraction sparks a race to the safety of fixed-income assets. The largest price gains are for longer-dated maturities.

The yield on the 2 year note has slipped 2 basis points to 0.95 percent. The yield on the 3 year note has dropped 2 basis points to 1.35 percent. The yield declines pick up a little steam in the belly of the curve as the yield on the 5 year note has fallen 5 basis points to 1.94 percent. The yield on the 10 year note has moved lower by 6 basis points to 2.95 percent . The yield on the Long Bond has tumbled 9 basis points to 3.62 percent.

The 2 year/10 year spread has narrowed 4 basis points to a still wide 20 basis points.

The 2 year/5 year/30 year spread is unchanged at 69 basis points.

What are some of the factors that have combined to drive bond prices higher overnight?

Equity markets around the globe have cratered as investors sift through the carnage of the US GDP report (from Friday) and react accordingly.

European markets have declined about 3.5 percent and tne Nikkei and Hang Seng each declined nearly 4 percent. In Australia the index declined a little less than 3 percent.

The Oracle of Omaha did not contribute to global stability with his weekend proclamation that the economy is a “shambles”.

The solons of the EU gathered over the weekend and walked away from the gathering without any plan to bail out or rescue the weak sisters of Europe. The dithering by those leaders has contributed to the weakness in the Euro.

The AIG (NYSE:AIG) announcement by the US government is not designed to instill confidence that the financial crisis is nearer to a conclusion. In fact it leads to the opposite conclusion: that the crisis is intensifying.

Economic data released overnight and data expected over the course of this week are such that global equity markets will have a difficult time rebounding in the near term.

It is pretty ugly here and I will busy myself digging our cars out of the driveway.

Morning miscellany:

One dealer reports that in spite of price gains overnight, the US Treasury market was not especially active. The dealer observed some central bank selling of the 2 year sector and bank sellers in the 10 year sector.

There are several pieces of economic puzzle available for public perusal today. Paid prognosticators and pundits will probe, prod and poke the data for insight regarding the near term course of interest rates.

We receive the monthly ISM data which should post a small decline. There is also the monthly construction data, which should be weak, as well as the monthly income and spending data, which should contain benign inflation news.

The market is still hostage to supply, and to the extent that calamity is averted or deferred in equities, bonds will lose some of their luster. Levels behind 2 percent on the 5 year and 3 percent on the 10 year have held for now. But the market will need some new infusion of bad economic news to sustain a significant rally.

IG 11 opening 225/227 which is wider by 6 basis points.

Swap spreads are wider by 2 basis points in the 2 year sector and 5 year sector and flat in 10s and 30s.

Source: Bond Expert: Monday Outlook