Across the Curve

Bond Market Oppening June 05 2009

Prices of Treasury coupon securities, on balance, are posting modest losses in advance of the monthly employment report. As far as I can tell from my early morning perusal of the news, there was no market moving news in the overseas session.

The only news of note seems to be political and that would be the ongoing turmoil in the UK as a maelstrom swirls around the current Prime Minister. I did see that the uncertainty has taken its toll on the UK currency.

In the absence of overnight news I would be remiss if I did not note an item from yesterday which receive only thin notice. According to  WSJ story sales at large retail chain stores declined more than 4  percent in May. Apparently there is the need for some adjustment for Walmart and the comparison to last year is tough because consumers were spending tax rebate checks at this time last year. But the bottom line is that even after all of that adjusting, the level of spending is lower and one must question the viabilty of this particular green shoot.

Chairman Bernanke in his Congressional testimony earlier this week noted  that consumers face a difficult situation and that should impede consumption. The labor market is still rather weak and limits income growth. Individual consumers see 401K accounts depleted and in rehabilitating their personal balance sheets have increased their savings. I believe the most recent data on savings shows that the savings rate has jumped to 5.8 percent after hovering near zero in the period before the collapse of the housing market and the financial system.

The yield on the 2 year note has climbed 2 basis points to 0.97 percent.The yield on the 3 year note has increased a basis point to 1.53 percent. The yield on 5 year note is unchanged at 2.59 percent. The yield on the 7 year note is a basis point higher at 3.34 percent. The yield on the 10 year note is 2 basis points higher at 3.73 percent and the yield on the Long Bond is a basis point higher at 4.59 percent.

The 2year/10 year spread is 276 basis points and did touch a modern era wide of 278 basis points yesterday.

The 2year/5 year/30 year spread which it is my custom to reflect on here has gotten crushed and is at 38 basis points. That reflects the carnage in the mortgage market as much of the hedging of those positions would pressure the 5 year through 10 year points on the curve.

That same pressure is reflected in the record 2year/10 year spread . It can also be observed in the 10year/30 year spread. At one point yesterday that spread was 91 basis points but as the selling wave peaked the pressure on the 10 year note pushed the spread to 86 basis points.

Sit back and relax and wait for the 830 AM data. Then wait a few minutes and sell something!!!