Bond Expert: Tuesday Outlook

Prices of Treasury coupon securities have posted minimal changes in overseas trading. The yield on the 2year note is unchanged at 2.42 percent and the yield on the 5 year is steady at 3.16 percent. The yield on the benchmark 10 year has dropped by one basis point to 3.86 percent and the yield on the 30 year bond has declined by 2 basis points to 4.59 percent.The yield spread between the 2 year and the 10 year has narrowed by one basis point at 144 basis points.

Japan celebrated a public holiday and stocks did not trade in that country. Hong Kong stocks registered modest gains while equity markets in Australian have posted small losses. UK and European equity markets are modestly lower. Futures market trading indicates that US stocks will open with marginal losses.

There is quite a bit of miscellaneous news to digest. Rising commodity prices continue to weigh on sentiment and a new record for the price of oil heightens concern regarding the plight of consumers around the globe. Later in the morning two reports which track retail sales will be released (the Red Book Survey and the report of the International Council of Shopping Centers) and they will be the first reports on retail sales which are available since the government began distributing the fiscal stimulus checks. So it will be interesting to see if the first little ripple of that money manifests itself in the data.

The persistent effects of the credit crunch are still with us in spite of the progress and recovery in confidence attained the last several weeks. Wounded Swiss banking giant is still reeling under the weight of cumulative losses totaling $38 billion . The CEO of that troubled company foresees a difficult business environment for quite sometime. Against that background he has announced to slash employment at the firm by 5500 jobs by mid 2009.

Swiss Re reported that its profit fell by 53 percent and in Germany Hypo Real Estate Holdings fell as it took charges related to the subprime mess.

Federal Reserve Chairman Bernanke spoke last night and offered the sagacious observation that accelerating foreclosures would hurt the US economy.

In the UK and index of service sector growth slipped to 50.4 from 52.1 in the prior period. It was the lowest level for that index in 5 years.

European PPI increased at a 5.7 percent pace in the latest month from 5.4 percent in the earlier period.

There is a dearth of economic data today so the markets will fixate on commodity prices and supply. The refunding auctions begin tomorrow and the 10 year note which is on the block first should suffer on a relative basis. Corporate supply should also be heavy as participants expect issuance to remain robust.

Have a great day.