Tuesday's Bond Outlook: Citi and BoA Stressing Out Market

Prices of Treasury coupon securities are posting modest gains in overnight trading. Equity markets around the globe are suffering the slings and arrows of outrageous fortune (I just made that phrase up) this morning.

Equities are slumping in response to a Wall Street Journal story this morning which states that the results of the stress tests are such that Citibank (C) and BOA (BAC) will need to come to the market with cup in hand in search of new capital. The story notes that discussions between each of the companies and regulators are ongoing.

The same story also relates that some regional banks will also hear a firebell in the night regarding the stress tests. The Journal article specifically mentioned Wells Fargo, Regions and Fifth Third as candidates for capital infusion.

Against this background equity investors have developed very sweaty palms and stocks in Europe have declined between 2 percent and 3 percent thus far.

The yield on the 2year note has slipped 2 basis points to 0.89 percent.The yield on the 3 year note has dropped 2 basis points also to 1.28 percent. The yield on the 5 year note has declined a basis point to 1.83 percent. The yield on the 10 year note has decreased a basis point to 2.90 percent and the yield on the 30 year bond has edged lower by a basis point to 3.82 percent.

The 2year/10 year spread is 201 basis points. That is a tad flatter because the roll into the new 2 year note is about 3 1/2 basis points.

There are several pieces of economic data this morning.

Case Shiller will report on the dire state of the housing market. The consensus holds that the YOY price decline will be 18.7 percent.

The consumer confidence report from the Conference board should show a small rebound in confidence to 30 from 26 in the prior month.

Today the Treasury will test investor appetites for 5 year notes with an auction of $35 billion 5 year notes.