Across the Curve

Some Opening Comments September 10 2008

Prices of Treasury coupon securities have retreated in European trading reversing some of the outsized gains attained yesterday. The largest declines were in the shorter maturities, reflecting a reduction in fear premium. That seems a tad premature since Lehman Brothers will announce its earnings at 730AM New York time. There is no other noteworthy economic news in the US today and that earnings announcement will set the tone for fixed income market trading. Lehman Brothers stock declined 50 percent yesterday so it does not take a rocket scientist to determine that the market, ever efficient, has discounted bad news in the earnings report.

The yield on the 2 year note has jumped 7 basis points to 2.23 percent. Likewise the yield on the 5 year note has jumped 7 basis points to 2.92 percent. The yield on the 10 year note has climbed 5 basis points to 3.61 percent. (I had forgotten to mention that the US Treasury, ever active in raising funds, will reopen the 10 year tomorrow as it auctions$12 billion of that security.) The yield on the 30 year bond edged higher by 2 basis points to 4.19 percent.

The 2year/10 year spread narrowed 2 basis points to 138 basis points.
In Europe ECB chief Trichet gave no ground and declared that fighting inflation is still the Bank’s top priority.

The UK economy contracted for the first time in a dozen years as GDP growth fell 0.2 percent in the period June through August, according to the National Institute for Economic and Social Research.

Growth prospects remain hazy for the European Union as growth prospects were revised lower to 1.3 percent for 2008. An earlier estimate in April had looked for growth of 1.7 percent. The report noted that global developments suggest significant downward revisions to 2009 forecasts.

New Zealand home sales reached a 26 year low and are 34 percent below year ago levels.

Inflation eased in China and Japan.

OPEC has decided to cut production (and I wonder if this plagiarism) cited “downside risks to the global oil outlook.” Oil prices have jumped over $1 but that seems like a pretty tame response.

Equity markets sank in Asia and are declining in Europe. Futures market trading indicates the US share prices will open higher this morning.

Once again I reiterate that the Lehman Brothers announcement in 30 minutes will set the tone for trading today.