Bond Expert: Friday Outlook

Prices of Treasury coupon securities continue to plummet as equity markets around the globe seemingly posit a happy state of financial nirvana and with that a flight from risk averse assets.The yield on the benchmark 2 year note increased by 8 basis points overnight and rests at 2.18 percent. That fear sensitive instrument has not yielded that much since late January .

The yield on the 5 year note has also climbed by 8 basis points and is flirting with the 3.00 percent level as it is trading at 2.97 percent. The damage in the longer maturities is less as the unwinding of curve steepening strategies benefits those instruments. Against that background, the yield on the 10 year note has increased by 4 basis points to 3.76 percent and the yield on the 30 year bond has registered a gain of just 2 basis points to 4.55 percent.

Libor rates continue to surge as uncertainty about the true cost of borrowing roils that market place. One month Libor has jumped about 7 basis points to 2.87 percent.Three month Libor has climbed 9 basis points to 2.90 percent and one year Libor has surged 15 basis points to 3.06 percent. Three month Libor has not been this high since March 10.

There is no economic data today and the next meaningful data will be on Tuesday when reports on Existing Home Sales and the level of manufacturing in the Richmond Federal Reserve District become available.

In the meantime the surging equity markets will suck funds away from the bond market and those holding bond market positions predicated on an economic debacle will do some serious soul searching as the price action makes holding those trades painful and unprofitable.

Comments

[jmkeynes:]

Since it looks like the Fed is ending its string of interest rate cuts and it also looks like foreign borrowers of us treasuries are setting up sovereign wealth funds to diversify out of us treasuries, then maybe it is time to short long term (10yr, 20yr, and 30yr) us treasuries.

2008 Apr 18 04:17 PM

[adan:]

what would the perspective on treasuries be if all 401's were required to have available to individuals the choice of being able to purchase the actual treasuries, not just "a" bond fund (much less an etf) ?

how many 40 to 60 year olds would opt to buy some?

after all, the current non-availability is strictly arbitrary

2008 Apr 19 09:51 AM

[Will Rahal:]

Higher US rates will also make the Dollar more attractive.

I think that an imminent correction in commodities and the US Dollaris likely.

I have charted Crude, Intermediate & Finished Goods ratios and they are at extreme levels associated with reversals.

2008 Apr 19 11:33 AM