Bond Expert: Friday Outlook

Prices of Treasury coupon securities have registered modest gains in overnight trading. There were a host of economic numbers in various venues but it seems that traders have latched onto a weaker than expected German retail sales number and have used that as a springboard to slightly higher prices (and once again the longstanding inverse relationship between prices and yield has held, so yields declined). This is also the last day of the month so there is also some support from the modest index extension.

The yield on the 2 year note has declined 2 basis points to 0.95 percent. The yield on each of the other benchmark issues has declined by 3 basis points. The yield on the 3 year note is 1.47 percent and the yield on the 5 year note is 2.41 percent. The yield on the new 7 year note rests at 3.07 percent and the yield on the 10 year note is 3.47 percent. The still investment grade Long Bond pays a whopping 4.31 percent.

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

The 10year/30 year spread is unchanged at 84 basis points.

The 2year/5 year/30 year spread is 44 basis points.

There are some interesting data points today and most should have a bullish tinge about them.

Data on personal income should manifest no gain.

We also receive data on spending, and the pompous pundits and prognosticators who are paid to project that point expect a decline of 0.5 percent.

That mix of flat income growth and declining spending, if maintained, is not healthy for future economic growth, notwithstanding the gains announced yesterday.

We receive data on manufacturing in Chicago today via the Chicago Purchasing managers Index. Most forecasters perceive a rise to 49 from 46 in the prior period.

And we receive the quarterly ECI report - that measure of inflation should be quite benign at 0.4 percent.

Overnight the Bank of Japan announced that it would end the emergency program under which it buys corporate bonds.

I do not have a strong feeling about market direction. With the 10 year at 3.47 we are close to the middle of the recent 3.55ish to 3.40 ish range of recent trading days. I think that today will produce an inside range at a narrow trading range.

I do not perceive the market breaking out in either direction today and believe that will only happen with the labor report next week and the auction of 3s, 10s and 30s the following week.