Bond Expert: Wednesday Outlook

| About: CurrencyShares Euro (FXE)

Prices of Treasury coupon securities have sagged in overnight trading. As far as I can tell there was no piece of news or data which moved the market lower.

Equity markets in Asia declined modestly while European markets are posting modest gains. The last time I looked it appeared the US equities would open with very small gains.

The mighty greenback has slipped versus the Euro (full disclosure requires that I reveal that I bought the ETF FXE yesterday) and gold and oil are higher.

The Bank of England split on its bond purchase program and maybe that caused some angst in the fixed income markets as UK markets and German markets are modestly lower.

In the US today we face data on Housing Starts and CPI. It is possible there might be some market moving information in those releases but neither should influence trading prior to the 830AM release time.

I believe that the primary cause of the lower prices and supply is the impending announcement of supply via auctions of 2 year notes, 5 year notes and 7 year notes scheduled for next week. Those auctions should total in the vicinity of $115 billion.

One technical problem in the bidding process next week is the Thanksgiving holiday. The auctions will be on Monday, Tuesday and Wednesday. Trading in US markets on the Friday following Thanksgiving is very thin and very illiquid. Consequently if you buy the auctions next week, you will not have an opportunity to trade out of them (in a significant way) until the Monday following the holiday weekend.

That knowledge should impose a bit of discipline on professional bidders and will increase the cost to taxpayers. Happy Thanksgiving!!

In the overnight session, the yield on the 2 year note has increased 2 basis points to 0.77 percent. The yield on the 3 year note climbed 3 basis points to 1.29 percent. The yield on the 5 year note has added 4 basis points and rests at 2.20 percent. The yield on the 7 year note has edged higher by 3 basis points to 2.89 percent. The yield on the 10 year note has increased 2 basis points to 3.35 percent. The yield on the Long Bond has increased just a basis point to 4.26 percent.

The 10 year/30 year spread narrowed a basis point to 91 basis points. With the surfeit of Treasury issuance in the belly of the curve next week, I would anticipate that spread revisiting the mid 80s.

The 2 year/10 year spread is unchanged at 258 basis points.

The 2 year/5 year/30 year spread is 63 basis points. I believe I clocked that at 67 basis points around this time yesterday, so that spread is cheapening into the supply.