Bond Expert: Tuesday Outlook

Prices of Treasury coupon securities, on balance, have reversed the gains of yesterday as global equity markets stabilize following a bout of profit taking yesterday.

The yield on the 2 year note has increased 2 basis points to 0.91 percent. The yield on the 3 year note has climbed 2 basis points to 1.36 percent. The yield on the 5 year note has edged higher by 2 basis points to 2.04 percent. The yield on the 10 year note has edged higher by 3 basis points to 3.19 percent. The 30 year bond has bucked the trend and with a little rounding help has posted a yield decline of 1 basis point to 4.18 percent.

The 2 year/5 year/30 year spread has narrowed to 101 basis points from 103 basis points late yesterday.

The 2 year/10 year spread is a tad wider at 228 basis points.

There was not a plethora of economic data overnight. In the UK they have some green shoots, too. There are signs of a slowing rate of decline in housing prices as a survey shows that the percentage of real estate agents observing falling prices is 59.9 percent, which is the lowest percentage since January 2008.

Industrial production in the UK fell 0.6 percent in March. Economists had expected a decline of 0.9 percent. The year over year decline was less than expected also, as it registered 12.4 percent versus an expected decline of 12.8 percent.

I noted in an overnight post the economic data which print in the States today. The main piece of info is the March trade balance, which should post a small gain to $29 billion, reflecting higher oil prices.

As an aside, there are news stories about a Congressional compromise on the issue of curbing credit card abuses by issuers of credit cards. In particular, the bill targets the practice by issuers of raising interest rates on existing balances.

I will not make a normative statement and excoriate the issuers. I will say, though, that it seems obvious to me that in restricting the companies' ability to charge higher rates, that the bill would have the unintended consequence of restricting the flow of credit.

I would also offer a modest Swiftian proposal that anyone who carries a credit card balance and pays rates of interest in the 20s should voluntarily submit themselves for sterilization. They should do this to keep the gene pool pristine.

Corporate bonds

I have some opening quotes on early trading in the Microsoft (MSFT) deal of yesterday.

The 5 year opened 80/75. The 10 year is 102/97 and the 30 year is 106/101.

The pricing spreads were 95,105 and 105. So there is some congestion in the longer tranche.

There are more corporate deals this morning. Oxy Petw is offering $600 million 7 years. Canadian Pacific Railway (CP) is selling $300 million 10 years and the acronymic EQT Corp (of which I had no knowledge until moments ago - ah, formerly Equitable Resources) (EQT) is marketing $500 million 10 years.

Comments

[Bull Run:]

Thank the gods, I'm paying 19.5%.. I'm cleared for take-off.. I don't think this recent buying is sustainable at these prices.I see a return to the steepening yield curve.

May 12 09:23 AM