Across the Curve

Bond Market Open August 27 2009

Prices of Treasury coupon securities are posting small mixed changes in overnight trading.

The yield on the 2 year note is unchanged at 1.05 percent. The yield on the 3 year note is unchanged at 1.54 percent. The yield on the 5 year note has increased a basis point to 2.47 percent. The yield on the 7 year note has increased a basis point to 3.44 percent. The yields on the 10 year note and the Long Bond have also increased by a basis point to 3.44 and 4.20 percent,respectively.

The 2year/10 year spread is a basis point wider at 239 basis points.

The 10 year/30 year spread is 76 basis points.

The 2year/5 year/30 year spread is 31 basis points. That has narrowed 6 basis points from my closing post and merely reflects the roll into the new 5 year note.

The high point of this day will be the conclusion of the Treasury fund raising process with the auction of $ 28 billion 7 year notes.

There was some economic news overnight.

In Japan aluminum shipment and copper product output rose to the highest level of the year in July.

China’s State Council decreed restraints on production of cement and steel to guard against overcapacity.

Retail sales in Europe fell for the 15th month in a row.

House prices in the UK had their sharpest gain since December 2006. (That was around the time that the phrase “subprime mortgage” had just begun to roll off the tongues of bond market participants who were not part of that murky world.)

Today is Thursday so it brings the weekly jobless claims data. Most economists agree that the data is now “clean” and no longer reflects seasonal adjustment problems. The pundits who prognosticate and pontificate on that topic suggest that first time filers this week will total 565K versus 576K last week. That is still a rather high number and sends a message that businesses will have shed another healthy chunk of employees in August.

Today also brings a revision to the GDP report for Q2. In the first report Commerce estimated that GDP declined at a 1.0 percent clip in Q2. I believe that the consensus for the revision is a faster decline of 1.5 percent,led by inventory liquidation.