Bond Expert: Wednesday Outlook

Treasury coupon securities are manifesting painfully small mixed changes in overnight trading. Eurozone PMI increased in June to 42.6 from 40.7 in May. The index is still contracting but at a diminishing pace and reached its highest level since that fateful month of September 2008. Manufacturing in China expanded for the fourth month in a row as the index rose to 53.2 from 53.1. In Japan the Tankan survey rose to a less than expected -48 from -58. Paid prognosticators posited a push to -43.

There were two other interesting stories (at least to me). Janet Yellen spoke overnight and stories suggest that she said that the funds rate could be at zero for years.

And news reports are that the State of California is broke and will begin to pay for services today with IOUs. I am not sure who would accept those IOUs or why they would accept them and I am not sure how those IOUs gain acceptance as money.

The system of paper money under which we operate is based upon trust. It would seem that the credibility of the State of California has been demolished and accepting an IOU from the State is a perilous exercise.

The ISM in the US is available today and forecasts are that it rose to 44.6 from 42.8 in the prior month. In Q1 it averaged 35.9 and in Q3 it averaged 36.1.

The ADP will release its estimate of private company job losses in June and the consensus expects -394.

Car sales were probably a still rather weak 9.8 million units.

The yield on the 2 year note slipped 2 basis points to 1.09 percent. The yield on the 3 year note edged lower by a basis point to 1.61 percent. The yield on the 5 year note climbed a basis point to 2.56 percent. The yields on the 7 year note and the 10 year note each climbed a basis point to 3.21 and 3.54 percent, respectively. The Long Bond is unchanged at 4.33 per cent

The 2 year/10 year spread widened 3 basis points to 245 basis points.

The 2 year /5 year/30 year butterfly is 30 basis points.