Bond Expert: Tuesday Wrap

Prices of Treasury coupon securities gyrated about in a narrow range today as market participants jockeyed positions ahead of a veritable deluge of information tomorrow. As I noted in a prior posting there was some active buying out the curve in the late morning and midday but a recovery in the equity market tempered the enthusiasm and late in the day some professional selling pared the gains.

The yield on the benchmark 2 year note has slipped by 2 basis points to 2.33 percent. The yield on the 5 year note has dropped by 2 basis points to 3.10 percent. The yield on the benchmark 10 year is down by 1 basis point to 3.81 percent and the yield on the 30 year bond has also dropped a basis point to 4.55 percent.The 2 year /10 year spread is closing the day at 148 basis points.

Economic data released today was unabashedly bond-friendly. I discussed the Case Shiller Home Price Index in an earlier post but will add two points suggested by UBS economists. The Case Shiller Index has declined nearly 15 percent from the peak it attained in July 2006. Earlier, I picked out a handful of cities to make clear the rapid pace at which home prices have declined recently as I highlighted the 3 month annualized rate of certain cities. UBS economists note that the 3 month rate of decline annualized for all 20 cities is a chunky 24 percent.

I did not say anything earlier about the Confidence Report but it is also troublesome. The jobs-hard-to-get portion of that survey has weakened and points to trouble dead ahead for consumption.

Tomorrow the data will flow fast and furious and will be difficult to trade because all of it presents itself prior to the FOMC announcement at 2:15PM New York time. Investors will have an opportunity to call red or black on GDP, Chicago Purchasing Managers, the Employment Cost Index and the ADP guesstimate on jobs. Amidst that jangled cacophony there will be a refunding announcement and the FOMC announcement.

So strap yourself in tomorrow. Or get long one day vol!!

Agency spreads are 1½ basis points to 3 basis points tighter. Dealers report that the buying barrage which began with the back up in rates has continued even as yields drop.