Bond Expert: Thursday Outlook

| About: SPDR Barclays (TLO)

Prices of Treasury coupon securities are posting small mixed changes in overnight trading. The price action is counterintuitive with the 10 year and 30 year essentially unchanged (ahead of the bond auction later today) while the shorter benchmark issues experienced small losses. So the curve is a tad flatter.

The yield on the 2 year note has increased 2 basis points to 0.88 percent. The 3 year note has increased 2 basis points to 1.39 percent. The yield on the 5 year note climbed a basis point to 2.18 percent. The yield on the 7 year note also edged higher by a basis point and stands at 2.78 percent. The 10 year note is unchanged at 3.19 percent and the Long Bond is unchanged at 4.00 percent.

There is quite a bit of news to sort through. Equity markets around the globe are surging. Stock investors are as giddy as an infatuated adolescent, as Alcoa (NYSE:AA), the first firm to report Q3 earnings, unexpectedly posted a profit. Asian stocks ran with that, as well as with a report from Australia in which unemployment fell in that country for the first time in five months.

Pre market trading indicates that stocks will enjoy robust gains at the open here.

Timothy Geithner and his minions will complete the refunding process today with an auction of $12 billion Long Bonds. It is a reopening of an outstanding issue. The issue has cheapened recently as the 10 year/30 year spread has moved to the 81/82 zone following a visit to the narrow side of the range in the mid 70s.

The wings of the 2 year/5 year/30 year butterfly have also outperformed recently with that spread moving from around the 30 to about 52 currently. That might encourage some to exit the belly for the wings and is a plus for the auction.

On the negative side the issue is expensive on an outright basis as it hovers around 4 percent. To hold the Long Bond at that level requires a degree of faith as the issue is priced for a host of bond friendly events.

Federal Reserve officials will have a case of logorrhea today with quite a few speaking. The most important speech will be that of Chairman Bernanke, but it will take place after the close of New York trading. He will discuss the Federal Reserve balance sheet. Let’s hope he throws some red meat in the direction of the grassy knoll to enrich discussion in the blogosphere.

I expect that the speech will leave some impression regarding Bernanke’s view of recent hawkish comments by some of his policy making partners . I would suspect that he will spend some time discussing exit strategies and how they might be employed. I suspect that he will be rather vague about the timing of such activity.

Separately, Fed officials Lacker, Tarullo and Hoenig also speak today. The Hoenig speech is scheduled for 845PM, so it will not affect trading in the day session.

And lest I run on forever, the Labor Department will release data on initial jobless claims. The consensus prognosticates a decline to 540K from 551K.

The 4 week moving average in the last report was at its lowest level since January.

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