January 31 2014 Opening

January 31st, 2014 6:18 am | by John Jansen |

Prices of Treasury coupon securities have pushed higher in overseas trading with the benchmark 10 year note firmly entrenched below 2.70 percent. I can not describe a sole factor for the price gains but instead attribute the move to a confluence of fixed income favorable circumstances. Major equity markets are moving lower. The Nikkei declined 0.6 percent overnight and the Hang Seng dropped 0.5 percent. Major European indices are posting declines and eyeballing the screen I would say that on average the drop is about one percent. S and P futures are down about 9 points. Economic data in Europe was bond friendly and has bolstered hope of an easy money stance by the ECB when it meets next week. CPI in Europe increased 0.7 percent in December. Economists surveyed by Bloomberg forecast a gain of 0.9 percent. This is the fourth consecutive report below one percent and since the ECB target is 2 percent some observers think this will  report will place added pressure on the ECB to adopt a more accomodative policy stance. Finally, the foreign exchange market continues in turmoil with emerging market Europe under pressure once again.The Hungarian Forint has declined to to 229 to the dollar from 226 yesterday.It traded at 221 as recently as January 18. The Russian Ruble is back above 35 after closing just below 35 yesterday. As recently as December 31 that currency traded at 32 versus the mighty greenback.

Against that background the yield on the benchmark 10 year Treasury has declined 2.6 basis points to 2.67 percent. I will give the curve spreads I always provide but beware that with new 5s and 7s the spreads are distorted today by the rolls into the new bonds. Each roll is about 2.5 basis points. The 5s 10s spread is flatter by 3.5 basis points at 115.2. So roll adjusted it is actually tighter by a basis point. The 5s 30s spread is 2.7 basis narrower at 209.8 basis points. The 10s 30s spread (untainted by a roll ) is 0.9 basis points wider at 94.9 basis points. The 5s 10s 30s spread is 4.4 basis points richer at 20 basis points. That is as rich as that spread has been since early November. Prior to the 7 year note auction I posted a note detailing the relative cheapness of the 7 year note versus 5s and 10s. When I did that I employed the WI5 and the WI7 so there is no adjustment her. That spread is unchanged from where i marked it at the time at 11.5 basis points.

There is a gaggle of economic data on the docket  today with the Employment Cost Index and Chicago PMI leading the charge. There is also the set of reports which detail personal income and spending as well as the PCE deflator. Finally, the University of Michigan will issue its final report on Consumer Confidence in January.


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