Bond Expert: Tuesday Outlook

by: John Jansen

Prices of Treasury coupon securities are registering very small mixed changes in overnight trading. I think that most participants are content to bide their time for the statement which the FOMC will issue tomorrow at the conclusion of its two day conclave.

Speculation and discussion regarding that statement focuses on the possibility that the Federal Reserve will join the Quantitative Ease fraternity with the expansion of its balance sheet via direct purchase of US Treasury debt.

Most Fed speakers who have commented on the topic in the intermeeting period take the tack that Fed intervention in the markets in such a manner is a worthwhile enterprise only if it lubricates the credit markets. At this juncture, while one can state that the credit markets have not returned to pre-Lehman Brothers failure status quo ante, they are certainly not plumbing the depths of despair attained in the aftermath of that historic collapse. So I think that the central bank will keep its powder dry and hold that weapon in reserve for another day.

Today the market will receive information on PPI and Housing Starts.

The consensus looks for headline PPI of 0.3 and an ex food and energy print of 0.1.

Housing starts will remain mired at very low levels with the consensus looking for 460K versus 466K last month.

The yield on the 2 year note is unchanged at 1.00 percent. The yield on the 3 year note has edged higher by 1 basis point to 1.41 percent. The yield on the 5 year note has edged higher by a basis point to 1.92 percent. The yield on the 10 year has slipped a basis point to 2.95 percent and the yield on the 30 year bond declined one basis point to 3.74 percent.

Treasury Supply

Lest we forget I believe it is my duty to constantly reinforce the notion ofupcoming supply from the US Treasury.

The good folks at the Treasury will announce another round of 2 year,5 year and 7 year notes on Thursday. Last month the Treasury sold $ 40 billion 2 year notes, $32 billion 5 year notes and $ 22billion of the newly minted 7 year note.

The largest estimate I have heard for this upcoming announcement is $42billion, $34 billion and $25 billion . That would be a cool crisp $ 101 billion.

Strap yourself in.