Bond Expert: Thursday Outlook

Prices of Treasury coupon securities have sagged quite modestly in overseas trading, and with the price declines has come an ever so gentle steepening of the yield curve.

Economic data released overnight are mixed. In Japan, capital spending has fallen the most since the inception of recordkeeping in 1955 as capital spending tumbled over 25 percent in Q1 from a year ago.

In Europe, green shoots continue to show themselves.

Eurozone retail sales increased 0.2 and that was the first increase since November.

In the UK, home prices unexpectedly increased 2.1 percent when paid prognosticators had expected a decline of 1 percent.

The yield on the 2 year note has climbed 2 basis points to 0.92 percent. The yield on the 3 year note has edged higher by a basis point to 1.45 percent. The yield on the 5 year note has also edged higher by a basis point to 2.44 percent. The yield on the benchmark 7 year note, the benchmark 10 year note and the investment grade Long Bond have each increased by three basis points to 3.18 percent, 3.57 percent and 4.48 percent, respectively.

The 2 year/10 year spread has widened to 265 basis points.

The 2 year/5 year/30 year spread is 48 basis points, which is little changed from levels which prevailed in late New York trading yesterday.

The 10 year/30 year spread has widened to 91 basis points. Earlier in the week that spread had narrowed to 84 basis points. I believe it will widen into the reopening of the Long Bond next week. At the time of the bond auction last month, the spread reached 106 basis points.

In that regard, the Treasury will tell us the details of next week’s supply later today. Analysts expect a package in the low $60 billions.

In the US we will receive the weekly initial unemployment claims data. The consensus sees a decline to 620K from 623K. This report captures the Memorial Day holiday and so it might be subject to a little more volatility than is usual.

The Open Market Desk will intervene in the market and buy US treasury securities which mature between May 2011 and April 2012.

There is also some Fedspeak today, with speeches from Dudley and Pianalto as well as Chairman Bernanke offering some opening comments at a conference.

Here are some opening prices of a couple of the plethora of deals which priced yesterday.

Ameriprise (AMP) 10 year is 362/352 and priced at 375.

Met Life (MET) 5 year is 272/262 and priced 280.

Chevron Phillips (CVX) 5 year is 445/35 and priced 447.

Chevron Phillips 10 year is 445/435 and priced at 457.

Libor

Libor set lower once again with 3 month Libor at 0.62938 today versus 0.63688 yesterday.

Latvia

There was a failed bill auction in Latvia yesterday and it received only tangential notice. There is more chatter about the topic today and its threat to the Swedish banking system.

I guess there is some fear that this might spark some process which might initiate a new round of global financial distress.

Comments

[Tony Petroski:]

Damn those Latvians.
Why can't they get their financial house in order?

Jun 04 09:57 AM

[chgooldtown:]

Is this a good time to buy investment grade corporates? My CPA seems to think so.

Jun 04 10:24 AM

[TLassen:]

a little late, but yes it is still ok. We are in the early recovery stage of the business cycle. In the bond asset class buy Investment grade Industrial, Material and some Energy corporate bonds.


On Jun 04 10:24 AM oldtown wrote:

> Is this a good time to buy investment grade corporates? My CPA seems
> to think so.

Jun 04 02:20 PM