Bond Expert: Friday Outlook

Prices of Treasury coupon securities are posting modest gains in overnight trading. One can posit that the sell off yesterday was an underwriting response to the 30 year bond auction. One can also with some safety believe that the risk aversion trade remains in vogue.

While not falling dramatically most global equity markets are lower overnight. Early trading suggests a robust drop when the US market opens at 930AM. The dollar and the yen trade very well and gold and oil are tumbling. Ergo there is a bid for government bonds.

The yield on the 2 year note slipped 3 basis point to 0.90 percent. The yield on the 3 year note declined 5 basis points to 1.41 percent. The yield on the 5 year note dropped 7 basis points to 2.25 percent. The yield on the 7 year note tumbled an identical 7 basis points to 2.93 percent. The yield on the 10 year note declined 6 basis points to 3.34 percent. The yield on the 30 year bond dropped 5 basis points to 4.25 percent.

The 2year/10 year spread is 244 basis points.

The 2year/5year/30 year spread is 65 basis points. About one month ago with the market at its nadir that spread was 5 basis points. That indicates tremendous outperformance by the belly of the curve over the last month as the market rallied.

There are several pieces of data for participants to digest on a summer Friday. The Michigan index of consumer sentiment is set for release. Prognosticators expect a small decline to 70 from 70.8 at the end of June.

The trade balance should increase slightly to -30 from -29.2 in the prior period. If you recall the trade balance averaged about $60 billion a month through most of 2008. The decline to current levels demonstrates that a significant recession is a sure fire way to cure a trade balance problem.

There was some overnight news.

Exports from China in June were 21 percent lower than they were a year ago. It was also the 8th month in a row of declines.

Urban home prices rose in China for the first time in seven months.

PPI in the UK took its largest tumble since 2001 as it registered a decline in June of 1.2 percent from a year ago.

Next week will be a significant week in terms of data. There are several high profile data points with PPI and CPI as well as Industrial Production and Philly Fed.

Retail Sales is also on tap and that number will be quite informative. Department store sales (reported yesterday) were anemic and I am wondering if that number is poised to disappoint.

Comments

[whidbey:]

Yes, its like an elevator. We don't have a bond market as much as public convince used by the ghouls to send messages to the Treasury. Those of us attempting to make a living are made to appear to be the patsy. I am thinking of an all bond portfolio if only I can find an entry point.

Jul 10 02:47 PM