Monday's Bond Outlook: All Eyes on Financial Earnings

Prices of Treasury coupon securities have registered modest gains in quiet overseas trading. Japan was closed for a holiday. The yield on the benchmark 2 year note declined 3 basis points to 2.61 percent. The yield on the benchmark 5 year also fell 3 basis points and it currently trades at 3.38 percent. The yield on the benchmark 10 year note dropped 2 basis points to 4.07 percent and the yield on the Long Bond is unchanged at 4.65 percent. Asian stocks rallied on the residue of the better than expected Citi earnings last week and on word that China would implement measures to stabilize stocks.

European shares are in a state of flux as British mortgage lender HBOS failed to generate interest for its rights offering as existing shareholders purchased less than 10 percent of the offering. That leaves the underwriters long the preponderance of the shares, something less than 4 billion pounds which when multiplied by $2 is a not insignificant chunk of risk.

Wolters Klower, a Netherlands based information company, released guidance and it lowered previous estimates by one percent to 3 percent from 4 percent.

Early in the week there is a dearth of economic data and the focus will be earnings reports. Bank of America (BAC) will report and analysts will scour this release to measure the extent of the damage that Countywide has wrought on the financial wellbeing of B of A.

Tomorrow will bring reports from Wachovia and Washington Mutual. I suspect that the news there will be gloomy. In addition several well known and troubled regionals such as SunTrust, Key Corp and Fifth Third will report tomorrow.

The only economic data scheduled for release today is the less than informative leading indicator report. Later in the week we can digest information on New Home Sales as well as Existing Home Sales. In addition to the raw number, participants will search the report for evidence that the inventory of homes is stable or declining.

Update: BAC, the aforementioned mega bank, joins its brethren JPMorgan, Wells and Citi with better than expected earnings. That has tempered the early enthusiasm for bonds.