Bond Expert: Thursday Outlook

by: John Jansen

Prices of Treasury coupon securities are registering modest losses in overnight trading as a combination of rebounding equity markets and imminent supply (10 year auction today) weigh on sentiment. In addition, the markets will close early today in advance of the Good Friday holy day and that should act to further restrain liquidity.

The yield on the 2 year note has climbed 2 basis to 0.94 percent. The yield on the 5 year note has jumped 4 basis points to 1.87 percent. The yield on the 10 year note edged 3 basis points higher to 2.88 percent and the yield on the Long Bond increased 2 basis points to 3.69 percent.

The 2year/10 year spread is 195 basis points. I would expect that to be 197 basis points or a tad wider by auction time today.

The 2year/5year/30 year butterfly has cheapened to 90 basis points from 92 basis points.

In addition to the 10 year auction there is some economic data to digest today.

The weekly data on initial claims will be released and paid prognosticators anticipate a decline to 660K from 669K in the prior week.

It is also Trade Balance time for March and the gurus forecast that the number will be unchanged from February at -$36 billion. I guess we have learned that a steep recession is a sure fire way to cure a prodigious trade deficit.

Data from overseas was mixed.

In Australia the unemployment rate rose to an 18 year high at 5.7 percent in March from 5.2 percent in February.

However, in New Zealand house prices rose to a 16 month high in March.

In Japan Bloomberg reports that the government will propose a new $ 154 billion stimulus package to rescue the economy from recession.

Machine tool orders in Japan unexpectedly increased 7.7 percent in March. That is the good news. The bad news is that they are down over 84 percent when viewed on a year over year basis.

In China consumers responded to stimulus (or maybe stimuli) and car sales increased 10 percent in March.

In Germany and UK PPI increases were quite subdued.

And in Italy the shoots are not green yet as IP fell 3.5 percent in February from January.