Bond Expert: Thursday Outlook

 |  Includes: IEF, IEI, SHY, TIP, TLH, TLT
by: John Jansen

Prices of Treasury coupon securities have registered virtually no change in overnight trading. The yield on the 2 year note has edged higher by a basis point to 0.95 percent. The other benchmark issues are virtually unchanged. The yield on the 3 year note is 1.48 percent. The yield on the 5 year note is 2.40 percent. The yield on the 7 year note is 3.10 percent. The 10 year note yields 3.54 percent and the 30 year bond yields 4.44 percent.

The 2 year/10 year spread is 259 basis points.

The 10 year/30 year spread is 90 basis points.

The 2 year/5 year/30 year spread is 59 basis points.

The Treasury will announce the package of bonds that it will auction next week. it will consist of 20 year TIPS and then 2 year notes, 5 year notes and 7 year notes. The entire package should be approximately $110 billion.

The economic highlight of the day will be the initial claims data. I posted a piece late night from UBS which explains how faulty seasonal factors the last several weeks tarnished the number. There should be a big jump in claims this week as the faulty seasonal factor corrects itself.

The Open Market Desk will intervene in the once free market and purchase bonds with maturities from August 2026 through May 2039.

I watched small pieces of the Presidential news conference last night. I have very little expertise in the area of health care and in the delivery of health care services. But here is a question about which I have heard very little discussion.

If someone were to wave a magic wand and insure the 50 million people who are currently uninsured, elementary logic suggests that will cause a huge increase in demand for medical services. I suspect it would be a monster increase as many maladies and afflictions which the uninsured had left untreated, would now be brought to a medical practitioner of some sort for treatment.

The supply of doctors and nurses and hospitals is fixed in the short run. How can the system deal with the increased demand for medical services with the same supply without huge disruptions?

I am not commenting on any of the competing plans but unless I am missing something very simple we should be looking to produce many more doctors and nurses and build new hospitals before we change the current system.

Again I have virtually no expertise in the area but just using some common sense it seems that there will be bottle necks and traffic jams if we do not increase supply first.