Bond Trader: Monday Outlook

by: John Jansen

Prices of Treasury coupon securities have posted mixed results in lacklustre and lackadaisical overseas trading. The yield on the benchmark 2 year note is unchanged at 2.45 percent. Other benchmark issues have seen their yields rise quite gently. The yield on the 5 year note is one basis point higher at 3.17 percent. The yield on the benchmark 10 year note has increased by two basis points to 3.86 percent. The yield on the Long Bond is one basis point higher at 4.57 percent. The 2 year/10 year spread has widened to 141 basis points. ( In the bearish aftermath of the labor data on Friday the spread traded as narrow as 132 basis points.

Equity markets around the globe have registered disparate results in overnight trading. Markets in Japan and South Korea were closed for a holiday. Prices rose on the mainland Chinese market by 1.8 percent as fears of interest rate hikes to cool the surging economy retreated.

Hong Kong stocks dropped by 0.2 percent as some professional profit taking emerged.And Australian stocks gained 0.5 percent as commodity prices firmed. London markets were closed for a holiday but other European exchanges dropped modestly as some investors had second thoughts about the US labor data with some thinking that weakness would persist for awhile longer. Statements by avuncular billionaire Warren Buffet that the US economy is in recession weighed on sentiment. And hawkish comments from an Iranian official pumped up the price of oil, sapping some strength for equities.

The economic calendar this week is modest following the avalanche of last week. Today the market will digest the non manufacturing ISM data . Economists expect that report to be little changed from last month at 49.5 versus 49.6 in the previous period.

The Treasury will sell $15billion 10 year notes on Wednesday and $6billion of a reopening of the Long Bond on Thursday. I will venture into the deep end of the pool one last time and state that the yield curve will steepen into that supply. It is a quiet week without top tier economic data. Dealers will have little to focus on other than the supply and that will keep pressure on the maturities which the Treasury is minting.