Bond Expert: Wednesday Outlook

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

Prices of Treasury coupon securities are registering modest losses in overnight trading. The 10 year note has retreated once again to the 3.72 percent level which recently has been a zone in which buyers appear. I am not so sure this time as there is no particular piece of information available overnight which might have prompted the sell-off. In my opinion, the market is reacting to the impending supply announcement a little later this morning.

At that time the Treasury will reveal the details of the 3 year,10 year and 30 year auctions which are on the docket for next week. The package should total in the vicinity of $75 billion which would be the largest package of those three issues since the dawn of time.

The yield on the 2 year note broke down through recent support at the 1.20% level and increased 4 basis points to 1.24 percent. The yield on the 3 year note increased 4 basis points to 1.76 percent. The yield on the 5 year note climbed 4 basis points to 2.73 percent. The yield on the 7 year note increased 3 basis points to 3.37 percent. The yield on the benchmark 10 year note edged higher by 3 basis points to 3.72 percent. And the yield on the Long Bond increased 4 basis points to 4.50 percent.

The 2 year/10 year spread is 248 basis points.

The 10 year/30 year spread is 78 basis points.

The 2 year/5 year/30 year butterfly is 28 basis points.

ADP will release its estimate of non-farm payrolls today. One analyst I read notes that in Q2 they were not very reliable predictors as their average miss was 124K per month.

Non-manufacturing ISM is expected to be 48.