Bond Expert: Tuesday Outlook

by: John Jansen

Prices of Treasury coupon securities have edged higher in overnight trading as credit concerns and the potential for gargantuan raising of capital weighs on sentiment. As a corollary, the fear of an economic slowdown born of the credit crunch has intensified.

European stocks are lower by about 2 percent . Stocks in Asia have declined by nearly 2.0 percent, according to the MSCI Asia Pacific Index. Individually, the Nikkei had slipped 2.5 percent, the South Korean index has dropped nearly 3.0 percent and the Hang Seng is off more than 3.0.The yield on the benchmark 2year note has declined by 1 basis point to 2.42 percent. The yield on the benchmark 5 year note has slipped by 2 basis points to 3.16 percent. The yield on the 10 year note edged 1 basis point lower to 3.90 percent and the yield on the bond is unchanged at 4.49 percent.

The yield spread between the 2 year note and the 10 year note is unchanged at 148 basis points.

In overnight trading dealers reported an eclectic group selling 10 year notes, central bank selling of 2 year notes and European clients unwinding trades which have benefited from the widening of credit spreads.

There are several pieces of economic data this morning but they are second tier data and are unlikely to move the market.

If I ever finish writing this, the key variable is a speech that Bernanke will give in 30 minutes at 800AM New York time.

Risk aversion is the name of the game again with spreads widening and the curve steepening. If Bernanke does not say something which moves the markets, then the focus of investors will be credit concerns and corporate profits. The recent move has been swift but I think that any profit taking will bring in those who missed this trade.

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