Bond Expert: Monday Outlook

Jul. 6.09 | About: iShares TIPS (TIP)

Prices of Treasury coupon securities are posting small mixed changes on overseas trading. The yield on the 2 year note has slipped 3 basis points to 0.95 percent. The yield on the 3 year note is unchanged at 1.48 percent. The yield on the 5 year note has declined 1 basis point to 2.41 percent. The yield on the 10 year note is unchanged at 3.50 percent and the yield on the Long Bond has climbed a basis point to 4.33 percent.

The 2 year/10 year spread is 3 basis points wider at 255 basis points.

The 2 year/5 year/30 year butterfly is 46 basis points.

Equity markets around the globe are weak as the shock of the labor data from Thursday percolates and reverberates through global financial markets. Early indications are that there will be no bounce in the US as markets here will open with about one percent losses.

The focus of the day and week will be supply from the US Treasury. The auctions begin today with the sale by the Treasury of $8 billion 10 year TIPS.

As I write, the breakeven inflation rate is 1.64 percent. That has cheapened dramatically over the last month as it had traded as wide as 205 basis points in June when the market was at its low. The whiff of wage stagnation/deflation in the jobs report will certainly not add to demand for TIPS.

There is one noteworthy piece of economic data today and that is the non manufacturing ISM. The consensus expects an increase to 46 from 44 in May. For some perspective, it averaged 40.7 in Q4 and 41.8 in Q1.