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Prices of Treasury coupon securities posted marginal gains today with a surprisingly subdued reaction to the cratering stock market and the announcement from AIG of significant credit related losses.

The market has had a pretty decent run off the lows and with the refunding auctions in hand it might take a few days to sort out the next trade. One dealer noted that as the 2 year note creeps toward the 2.00 percent level it should begin to run into a wall of worry and market improvement will emanate from the longer maturities. The same dealer thought that the recent steepening was a function of the supply and looks for the back end to outperform as the month progresses. In particular it should be noted that with the Treasury refunding there will be a decent index extension trade which should keep the market better bid after the refunding settles.

The yield on the benchmark 2 year note has declined 1 basis point to 2.21 percent. The yield on the 5 year note is down by 2 basis points to 2.95 percent. The yield on the benchmark 10 year note is also lower by 2 basis points and it currently yields 3.76 percent and the Long Bond has experienced the same 2 basis point decline and yields 4.52 percent. The 2 year/10 year spread is lower by 1 basis point and is currently 155 basis points.

Next week is an active week on the data front. I will pay close attention to the retail sales data on May 13 which the pundits project to be flat and 0.2 ex autos. I think it will be instructive to view the number ex gasoline, too. I have a feeling that it was a great month for service stations and a less than festive time for others in the retail trade.

On May 14 the government releases the CPI data for April. Prognosticators expect 0.3 headline and 0.2 core inflation rates. Market participants will be parsing this number to see if the outsized gains in energy prices are seeping into other sectors with deleterious effect.

Enjoy the weekend.

Source: Bond Trader: Friday Wrap