Bond Expert: Friday Outlook

Prices of Treasury coupon securities are posting small losses in an overseas trading session, for the moment, devoid of the frantic and frenzied trading which has characterized recent sessions. The yield on the 2 year note has climbed 2 basis points to 1.70 percent and the yield on the benchmark 5 year note moved higher by the same amount to 2.60 percent. The yield on the 10 year is up by 1 basis point to 3.54 percent and the yield on the 30 year bond is virtually unchanged at 4.39 percent. The 2 year/10 year spread has flattened by 1 basis point to 184 basis points.

Equity markets in Europe are mostly lower but by small amounts. Asian markets posted solid gains. Equity futures point to solid gains for US markets when they open. Citibank upgraded Lehman and commented that the stock is 70 percent undervalued and that is ostensibly the reason for the jump in US equity futures.

The Euro is trading near its high for the day as ECB Governing Council member Weber stated that the ECB would raise rates if inflation made that course of action necessary.

There is a spate of economic data today but I do not expect that information to spark any wild paroxysms of trading activity. I think the better assumption is that the market will take its cue from activities elsewhere such as the equities markets or the individual credit markets. It has been another volatile week and I think traders will search for a good reason to remain hunkered down in the deep weeds.

One reason to avoid the fray is that next weeks brings some high profile economic data with the Chicago area Purchasing Managers Survey and the ISM survey on the docket early in the week . Next Friday the Labor Department releases the monthly employment report for March. At the moment the collected wisdom of the dismal scientists who earn money to forecast such things is that each of the aforementioned data points will provide more evidence of weakness in Q1 2008. The unemployment rate is expected to rise to 5.0 percent and payrolls are forecast to have shrunk by 50K after having dropped by 63k in February.

I wrote yesterday in my closing commentary about the TSLF and what I thought of the stop out rate . Economists at JPMorgan (a firm which was bright enough to employ me for eleven wonderful years) in discussing the low amount of bids tendered for the facility raised the possibility that the high level of Discount window borrowing ($37 billion on Wednesday evening) might have reduced demand for the TSLF as dealers drew liquidity via the Discount Window.

Repo is expected to open this morning at 1.75 percent. Say goodbye to the zero handles which are now an aberrant footnote in monetary and financial history.