Bond Expert Friday Outlook: Some Ominous Action

| About: SPDR Barclays (TLO)

Prices of Treasury coupon securities are suffering sharp losses in overseas trading as rebounding equities markets diminish the allure of risk-free government bonds. More important, the Premier of China declared that he is worried about the safety of his Treasury holdings and made noises which should concern an already deeply in hock borrower.

The yield on the 2 year note climbed 4 basis points to 1.04 percent. The yield on the 3 year note increased 5 basis points to 1.46 percent. The yield on the 5 year note surged 7 basis points to 1.96 percent. The yield on the 10 year note vaulted 9 basis points to 2.94 percent. The yield on the 30 year bond climbed 7 basis points to 3.68 percent.

The price action on the Long Bond is ominous. The result of the auction yesterday was spectacular as indirect and direct bidders gobbled up more than half the bonds and the auction stopped 4 basis points through the market. In the overnight trade the market blew through the 3.64 stop level and currently sits at the level at which it was trading at auction time. A breach of that level will bring, I think, a test of 3.75 again.

That breakdown will also lead the 5 year note and 10 year note to test support. The 10 year note has held support at 3.05 percent several times and has attracted buyers behind 3.00 percent. Similarly, buyers emerge in the 5 year at yields around 2 percent.

The 2 year/10 year spread has widened 5 basis points to 190.

Later this morning we will receive data on the January trade balance. The consensus sees a -38 billion print which I believe I read would be the lowest level in 7 years.

Later in the morning expect a small decline in the Michigan Index of consumer sentiment.

IG11 is opening one tighter at 233.5/235.