Bond Expert: Wednesday Outlook

Prices of Treasury coupon securities are virtually unchanged in overnight trading. The 2 year note yields 2.30 percent. The benchmark 5 year note yields 3.06 percent. The 10 year yields 3.83 percent and the Long Bond yields 4.45 percent.The spread between the 2 year note and the 10 year note rests comfortably at 153 basis points.

The Bank of Japan in a monthly report downgraded its assessment of the economy as it issues a pessimistic outlook for consumption, exports and production.

The Bank of England was Hamlet-like and contemplated raising rates, lowering rates and doing nothing. They did nothing. They viewed the biggest risk as the damage which would be done to confidence by a rate hike.

Today will be a difficult trading session as there does not appear to be a big theme today.

There is no agency auction to fret about, and stock markets around the globe have some degree of equanimity today. Crude oil is up modestly and the dollar is slightly better versus the Euro.

The 2 year note and the 10 year note are at relatively expensive levels which should provide resistance. The 2 year note has rallied over 70 basis points and unless one expects the central bank to lower rates it is a tad pricey. And to the extent that the world is not ending it appears even pricier.

The 10 year note runs into resistance between 3.80 percent and the 3.75 level. The market will need to offer investors a carrot to chew through those levels. If 3.75 percent can be taken out then there is clear sailing to 3.60 percent.

There is an old adage which holds that you should not short a quiet market. Maybe that is the rule of thumb which guides trading today.

 

Some overnight flow:

Life Insurer buys 10 year versus 2 year.

Hedge Fund buyers of 5 years.

Other Asian based buyers of 2 years and 5 years.