Bond Expert: Tuesday Outlook

Prices of Treasury coupon securities are posting modest gains in quiet overseas trading.The yield on the benchmark 2 year note has declined by 2 basis points to 2.32 percent. The yield on the 5 year note is down by a basis point to 3.11 percent. The yields on the 10 year note and the 30 year bond are approximately unchanged at 3.82 percent and 4.56 percent,respectively. The 2 year /10 year spread has widened by 2 basis points to 150 basis points.

Equity markets around the globe are painting a mixed picture. Japanese markets were closed for a holiday so there is no information from that venue. The Hang Seng in Hong Kong was up nearly a full percent while the Australian market posted a most marginal increase. In Europe the FTSE in London is higher by a little less than ½ percent while the rest of the European exchanges are posting modest losses. In futures market trading indications are that the US markets will open with modest losses.

There was a dearth of meaningful economic data yesterday but the data drought ceases today as two key reports are released. Economists expect that the Conference Board Survey of Consumer Confidence will post a multi year low today. The consensus expects a decline to 61 from 64.7 in the prior month as soaring food and energy costs and a soft job market will drain the enthusiasm of Mom and Pop in Hicksville. (There is a Hicksville here on Long Island.)

Additionally, the Case Shiller Home Price Index is expected to continue its slide.Last month it demonstrated that home prices had declined 10.7 percent from a year ago in the surveyed metropolitan areas. That year over year price decline is expected to accelerate to 12 percent with today’s data.

Some other economic reports released overnight are a subtle reminder that the credit crunch and housing crisis has not fully receded into the shadows. Realty Trac reports that foreclosures jumped 23 percent in the current quarter and are fully 112 percent higher than the year ago levels.

Deutsche Bank reported a $4 billion writedown of assets in the first quarter and consequently a $220 million loss for the period.

Additionally, HBOs the large UK mortgage company will look to raise $8 billion as it anticipates additional writedowns this year and next year.

I think that today will be another day with a narrow range and probably minimal price changes. The FOMC begins its meeting today but will not announce a decision until tomorrow. And while there is data today the real heavy duty stuff does not hit until tomorrow. So I think that the old adage about never shorting a quiet market will apply as participants wait one additional day for the real fireworks to begin.