Bond Expert: Tuesday Outlook

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

Prices of Treasury coupon securities, on balance, posted small losses in overnight trading.

The yield on the 2 year note increased a basis point to 1.24 percent. The yield on the 3 year note climbed 2 basis points to 1.78 percent. The yield on the 5 year note edged higher by a basis point to 2.75 percent. The yield on the 10 year note increased by a basis point to 3.78 percent and the yield on the Long Bond is unchanged at 4.53 percent.

The 2 year/10 year spread is unchanged at 254 basis points and the 10 year/30 year spread has not moved and rests at 75 basis points.

The 2 year/5 year/30 year spread narrowed a basis point to 27 basis points.

The highlight of the day will be the auction of $37 billion of 3 year notes by Timothy Geithner and his minions.

I failed to mention that in the buyback operation yesterday the Open Market Desk purchased $4 billion of the current 3 year note.

There is one important piece of economic data today and that is the report on Productivity and Unit Labor Costs.

Productivity should post sharp gains. UBS economists note that output was falling more slowly than in previous quarters and hours worked was plunging. That is the recipe for big gains in productivity.

Unit Labor Costs probably declined 2.4 percent in the quarter and the UBS folks suspect that the YOY change will be near zero.

In China exports in July were down 23 percent from a year ago.

Industrial Production in China gained a less than expected 10.8 percent in July.

New loans in China in July were 355.9 billion yuan which was only about 1/4 of the level in June.

Japanese household confidence rose in July to 39.4 from 37.6 in June. It was the seventh consecutive monthly increase after the index touched a low of 26 in December.

In the UK the Royal Institution of Chartered Surveyors reported that those observing lower housing prices exceeded those reporting increases by just 8 percent in June. It was the least that the falling price observation had exceeded rising prices in about two years.