Prices of Treasury coupon securities posted modest gains in a quiet quarter end session. Dealers reported that the level of activity was light and any large block trade was capable of moving spreads or markets.The yield on the benchmark 2 year note declined 4 basis ponts to 1.61 percent and the yield on the 5 year note declined the most ( 5basis points)of any of the active issues to 2.45 percent. The yield on the benchmark 10 year slipped 2 basis points to 3.42 percent and the yield on the Long Bond fell 3 basis points to 4.29 percent. The 2year/10 year spread widened 2 basis points to 181 basis points.
Maybe the treasury market has finally slipped into a range after weeks of wild and raucous trading. There are good buyers of Treasuries when the 10 year approaches 3.60percent and when the 2year trades towards 1.80 percent. The market has mounted two assaults on the 3.30 level in 10 yeaars and has failed to sustain trading below that level. I still believe that the prospect of weak labor markets will keep the Treasury market bid as we approach the data point. However,it will take a signifcantly weak data to force in fresh buyers below 3.30 percent. The low yield on the 10 year in 2003 was around 3.10 percent. To buy them now at 3.30 percent one has to believe that the next move up in price will take out that old low from 2003.
Economic data today was scarce with the Chicago Purchasing Managers survey leading the list. It showed an increase to 48.2 (consensus 46) from a depressed 44.5 in the prior month. New Orders ,Production and Employment all registered solid gains.
There is a less widely noticed Milwaukee PMI and it dropped below 50 today to its lowest level since 2003.
Tomorrow the ISM will be released and that should give participants a much better picture than today’s data.
Commodity prices tumbled sharply today.Crude was off more than $4 .Traders there expect supply to continue to increase while the slowing economy saps demand. Bloomberg noted that if supplies rise again this week it will be the 11th increase in the last 12 weeks