Bond Expert: Friday Wrap

by: John Jansen

Prices of Treasury coupon securities plunged today as economic data released today demonstrated that the economy, while weakened , still maintains a modicum of vitality. Specifically, the durable goods report showed that business investment is still solid and is a bit of ballast for the economy as the consumer retrenches.New home sales declined slightly but that was after upward revisions to prior months left that series in better shape than many had imagined and had some proclaiming that a bottom had been attained. Time will be the harsh judge of that statement.

Finally, the University of Michigan survey of consumer sentiment rebounded and manifested a consumer stoic in the face of an economic storm.

Interest rates rose significantly as the market had priced in negative news on each of the aforementioned fronts. Participants had also expected a deterioration of credit with WaMu (NYSE:WM) a particular source of concern. Credit fears did not worsen and the supply of rumors on the trouble thrift abated.

The yield on the 2 year note has jumped 10 basis points to 2.71 percent. The yield on the 5 yearnote increased 10 basis points, also, to 3.44 percent. The yield on the 10 year note also climbed 10 basis points and it is closing the week at 4.10 percent. And on a relative basis the winner today was the Long Bond as it closes the day at 4.68 percent and its yield in 8 basis points higher on the day.

The 2year /10 year spread is unchanged at 139 basis points.

The 2year/5 year/30 year butterfly has cheapened 2 basis points to 51 basis points.