Prices of Treasury coupon securities are registering small losses in overnight trading. The yield on the 2 year note increased 2 basis points to 1.03 percent. The yield on the 3 year note increased 1 basis point to 1.59 percent. The yield on the 5 year note climbed 2 basis points to 2.55 percent. The yield on the 7 year note also increased 2 basis points to the magical and mystical 3.25 percent level.The yield on the 10 year note climbed 2 basis points to 3.67 percent and the yield on the Long Bond edged one basis point higher to 4.56 percent.
The 2 year/10 year spread is 264 basis points.
The 10 year/30 year spread is 89 basis points.
The 2year/5 year/30 year spread is unchanged at 49 basis points.
There is one piece of economic data on the docket today, and that is the final University of Michigan Confidence survey. The preliminary report registered a 6.2 point decline to 64.6. The consensus calls for the final report for July to register at 65. Higher equity prices and lower gas prices probably led the gains.
In overseas economic news the UK economy contracted more than forecast in Q2. GDP contracted 0.8 percent from Q1 and fell 5.6 percent YOY. The YOY decline was the largest since record keeping began in 1955. (What were the British doing all those years? Why can't we say that it was the largest drop in GDP since Disraeli or Gladstone held the office? I am disappointed!)
On the continent the German IFO increased more than expected to 87.3 versus 85.9 in the prior period.
And a composite index of European manufacturing and services rose to 46.8 from 44.7
I have a feeling that this will be one of those summer Fridays on which the great mass of the unwashed will pack up early and leave for a weekend of fun and frolic in the sun.
Yesterday was a very bad day for Treasuries with yields rising sharply. Next week investors brace for record levels of supply from young Timothy Geithner and his minions.
The price action between the markets yesterday is a cause for concern as the underwriting process unfolds into next week. My concern is that the fixed income debacle yesterday was primarily a Treasury market event. The corporate bond market and the MBS market performed well on spread. Swap spreads widened somewhat but there was not a throw out the baby with the bathwater mentality.
Stocks reached multi month highs and money flowed copiously to risky emerging market countries.
If the appetite for risk does not fade, then woe to the Treasury market next week as the supply wave hits the shore.
Separately, the Open Market Desk will intervene in the free market today and purchase agency debt which matures between August 2011 and July 2013.
More here about next week's supply.