Bond Expert: Friday Wrap

Prices of Treasury coupon securities are experiencing some severe vertigo in very, very, light summer Friday trading. Universally market participants report that the level of activity is very light.

Against that background, bond prices have suffered sharp declines. What are the local short term causes of the slippage?

The Housing Starts data this morning was surprisingly strong. Permits are an indicator of future construction activity and according to economists at HSBC permits have risen at an annual rate of 58 percent in Q2.

The equity markets refuse to break after strong rallies. We are in the throes of earnings season and what we have observe thus far ranges from good to mildly disappointing.There has not been a gigantic clunker in the lot thus far.

And some participants think that as earnings season marches on, we will see heavier corporate bond issuance as the number of firms in blackout fades.

Roll all of that up in to a ball and add into the mix that it's a summer Friday, and one has the basis for an illiquid move.

Next week will be interesting as there is a dearth of top line economic data. The key focus of participants will be the Congressional testimony of Ben Bernanke and his outline for the near term course of monetary policy and his view on the macroeconomic outlook for the remainder of the year.

The strength of the equity market will continue to give direction as will the steady flow of earnings reports.

Finally, there will be a whiff of supply as the Treasury will provide details for the end of month cascade of 2 year, 5 year and 7 year notes. In each of the last two months the Treasury has offered the market a healthy libation of $101 billion of the aforementioned notes.

The yield on the 2 year note has increased 3 basis points to a nice round 1 percent. The yield on the 3 year note has also climbed 3 basis points to 1.58 percent. The yield on the 5 year note has increased 6 basis points to 2.51 percent. The yield on the 10 year note has soared 8 basis points 3.65 percent and the yield on the Long Bond has climbed 7 basis points to 4.52 percent.

The 2 year/10 year spread is 265 basis points which is about 6 basis points wider for the day.

The 2year/5 year/30 year spread is little changed at 50 basis points.

The 10 year/30 year spread is 87 basis points.

Comments

[CPST1]

Senator Franken: 1 percent yield?

2009 Jul 17 04:21 PM

[GeeDee]

Thanks for the very nice daily reports.

It will be nice to have weekly/monthly reports, which might be more indicative of the long term trends. (I feel that the daily action contains a lot of noise.)

2009 Jul 18 06:35 PM