Bond Expert: Thursday Outlook

Prices of Treasury coupon securities have retreated in overnight trading. Profit taking resulted from the huge price gains of yesterday as well as from anticipation ahead of the auction of $11 billion 30 year bonds today. In addition equity markets have stabilized and that has sapped some of the energy from the Treasury market, too.

As an aside I will venture into some equity market analysis (a field in which I have no expertise). Equities have allegedly stabilized with the release of the Alcoa (AA) earnings report. I read a little bit of one news release on the topic. It would seem that other than losing less money than analysts expected there is nothing to rejoice about at that company.

The company suffered its third loss in a row. Prices are depressed and demand is anemic. There was no organic growth and those improvements which the company registered derived from the company’s efforts to slash costs. So in a manner of speaking the company is not growing, it is shrinking. Anyway, I digress.

The yield on the 2 year note increased 2 basis points to 0.93 percent. The yield on the 3 year note edged higher by 3 basis points to 1.46 percent. The yield on the 5 year note increased 4 basis points to 2.27 percent. The yield on the 7 year note increased 4 basis points to 2.96 percent. The yield on the 10 year note ticked higher by 3 basis points to 3.34 percent. The yield on the still investment grade Long Bond is 4.22 percent.

The 2 year/10 year spread this morning is 241 basis points.

The 2 year/5 year/30 year spread is 61 basis points.

The 10 year/30 year spread is 88 basis points. That is 4 basis points wider than the level at which it opened yesterday and its widest level in quite some time. The range has been from 72 basis points to about 107 basis points.

The Labor Department will release the weekly claims data today. The consensus calls for a print around 603K. Analysts at UBS expect a larger decline to 580K. The UBS economists attribute the decline to faulty seasonals associated with auto plant shutdowns.

There is a little bit of Fedspeak today. Fed Governor Duke will speak to an FDIC conference at 9:00 A.M. Fed Governor Kohn will testify before the Congress at 1:30 P.M.

Comments

[TeresaE:]

Over the past three months we have had horrible news packaged as good news because it didn't suck quite as bad as it was expected to suck.

A little less pregnant apparently.

Somehow a 41% reduction in sales (and that is just compared to last year, wonder how the quarter compared to 2 years ago? 3?) is a positive move.

Alcoa has slashed many costs (shuttering production in high cost countries I imagine) and as such are also forcing the slowdown (or bankruptcy) of the many suppliers who relied on Alcoa for business.

So, it shoves the pain out in ripples.

The ripples stop right at the door of Alcoa's own customers.

And this is being replayed over and over, by every major company in America.

Bankrupting their own best customers.

Green shoots.

Jul 09 10:16 AM

[Mad Hedge F...:]

Good. The incredible melt up in Treasuries yesterday tells you that traders are dumping the global reflation trade like a hot potato. The ten year yield spiked up to a high of 3.28%, down from 4% only a month ago. Yesterday’s auction of ten year Treasury notes saw an amazing bid to cover ratio of 3.28, the highest in 15 years. When traders don’t want to play, they flee to government paper. The music has stopped playing, so it’s time to sit down. It looks like the deflationistas are going to have the upper hand over the inflationistas for the next couple of months. See my interview with Janet Yellen at (www.madhedgefundtrader...). This certainly puts my TBT trade on hold (see “Sell in May and Go Away” at www.madhedgefundtrader... and “The Viagra is Wearing Off” at www.madhedgefundtrader...). It’s best to read the writing on the wall, especially when it is in ten foot high, in fluorescent block letters, like this.

Jul 09 04:05 PM