Bond Expert: Friday Outlook

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 |  Includes: BGG, EGB, ERO, FXB, UDN, UUP
by: John Jansen

Prices of Treasury coupon securities have barely budged in overnight trading. Each of the benchmark issues has gained 1 basis point in yield. The 2 year note yields 2.44 percent. The 5 year note yields 3.16 percent. The 10 year note yields 3.90 percent and the Long Bond yields 4.52 percent.The yield differential between the 2 year note and the 10 year note is 146 basis points.

The rally in the dollar continued overnight and weighed on other markets. The dollar rallied to over 110 yen and the Euro sank to $1.4723. The British pound is in the midst of an epic collapse. Bloomberg reports that the pound touched $1.8554 overnight and that is the 11th daily decline of that currency versus the dollar. That is the longest losing streak in 37 years for that currency.

The dollar rally has led to further commodity price declines. Oil has dropped about $2.00 and gold has tumbled more than $26 to $787.

Most equity markets around the globe are registering modest gains in response to the lower price of oil which signals lower rates of inflation in the future.

In Germany the IFO institute lowered its forecast of economic growth for 2008 to 2.0 percent from 2.4 percent, reflecting the Q2 contraction.

Hong Kong GDP unexpectedly registered its worst performance since 2003 as the economy contracted by 1.4 percent in the quarter.

New Zealand consumers kept their wallets in their pockets as retail fell the most in 13 year, 1.5 percent, in Q2.

The US bond markets will digest several pieces of data today. The Federal Reserve will report on Industrial Production and the University of Michigan will release its preliminary report on Consumer Confidence.

Credit opening: IG 10 opening about 3/4 basis point tighter at 134 1/4.  One dealer notes that the trifecta of oil, equity and the dollar has worked to keep spreads tight. However, the index is fully priced relative to single names and it will take improvement there to spark a big move tighter on the Index.