Bond Expert: Tuesday Outlook

Prices of Treasury coupon securities are (on balance) posting modest gains in overnight trading.

The yield on the 2 year note has slipped 2 basis points to 0.91 percent. The yield on the 3 year note has also declined 2 basis points and rests at 1.42 percent. The yield on the 5 year note joined in that same parallel shift and declined 2 basis points to 2.34 percent. The 7 year note was the best performer of the evening as its yield dipped 3 basis points to 3.03 percent. The yield on the 10 year dropped a basis point to 4.26 percent. The yield on the Long Bond is unchanged at 4.26 percent.

The 2 year/10 year spread is a basis point wider at 252 basis points.

The 10 year /30 year spread is a basis point narrower at 83 basis points.

The 2year/5 year/30 year spread is 49 basis points.

The main focus of the market this week is the round of supply from young Timothy Geithner and his minions. First up is $38 billion 3 year notes today. I believe that there will be just a small concession for that bond and the street, as is its custom, will use that bond as an anchor for the 10 year and the 30 year issues which shall follow.

The Federal Reserve will buy back the May 2016 through August 2019 sector today. That process should keep the market firm in early trading and will represent an easy outlet for traders to set short positions out the curve.

Today and the entire week are light data days.

The Federal Reserve will post consumer credit data and the pundits who forecast such things expect a small decline.

Comments

[phil from E...:]

John, you mistyped the 10 year yield.

Sep 08 09:21 AM

[Macro_Man:]

I think being short Treasuries is not a good risk/reward play despite all the supply this week. I own some cheap TLT puts at 92, 93 and 95 which I had bought a few days ago when TLT was trading higher. I bought a little TLT with a 95 handle against my puts and if it goes below 94 will buy a little more.

Think the markets are poised at a very interesting point and we could see wild swings either way over the next 6 weeks, including - highly likely- the start of the next leg of the bear market in equities

Sep 08 09:30 AM

[LKofEnglish:]

couldn't agree more with not shorting treasuries. unpatriotic LITERALLY. Having said that, this is CRAZY TIME. Railroad stocks soaring means the Armageddon trade back on and rolling in like an American B-52 carpet bombing mission. All I gotta say is "look out beloooowwww."

Sep 08 11:42 AM

[whidbey:]

Macro man is likely correct. Bonds can go either way, but contemplation of a correction is lurking in the minds of many, so they will keep some bonds just in case. Geithner and gang have a long cold winter ahead of them and they are just the men to paint the town with paper while lecturing the G20 on getting control of the financial institutions. Were that we had such prospects in government, treasury to be exact.

Sep 08 02:01 PM