Bond Expert: Thursday Outlook

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Includes: IEF, IEI, SHY, TLH, TLT
by: John Jansen

Prices of Treasury coupon securities have retreated in overnight trading. Profit taking resulted from the huge price gains of yesterday as well as from anticipation ahead of the auction of $11 billion 30 year bonds today. In addition equity markets have stabilized and that has sapped some of the energy from the Treasury market, too.

As an aside I will venture into some equity market analysis (a field in which I have no expertise). Equities have allegedly stabilized with the release of the Alcoa (NYSE:AA) earnings report. I read a little bit of one news release on the topic. It would seem that other than losing less money than analysts expected there is nothing to rejoice about at that company.

The company suffered its third loss in a row. Prices are depressed and demand is anemic. There was no organic growth and those improvements which the company registered derived from the company’s efforts to slash costs. So in a manner of speaking the company is not growing, it is shrinking. Anyway, I digress.

The yield on the 2 year note increased 2 basis points to 0.93 percent. The yield on the 3 year note edged higher by 3 basis points to 1.46 percent. The yield on the 5 year note increased 4 basis points to 2.27 percent. The yield on the 7 year note increased 4 basis points to 2.96 percent. The yield on the 10 year note ticked higher by 3 basis points to 3.34 percent. The yield on the still investment grade Long Bond is 4.22 percent.

The 2 year/10 year spread this morning is 241 basis points.

The 2 year/5 year/30 year spread is 61 basis points.

The 10 year/30 year spread is 88 basis points. That is 4 basis points wider than the level at which it opened yesterday and its widest level in quite some time. The range has been from 72 basis points to about 107 basis points.

The Labor Department will release the weekly claims data today. The consensus calls for a print around 603K. Analysts at UBS expect a larger decline to 580K. The UBS economists attribute the decline to faulty seasonals associated with auto plant shutdowns.

There is a little bit of Fedspeak today. Fed Governor Duke will speak to an FDIC conference at 9:00 A.M. Fed Governor Kohn will testify before the Congress at 1:30 P.M.