February 28th, 2008 5:08 am | by John Jansen |

Prices of Treasury coupon securities registered solid gains in overnight trading as the perception that rate cutting by the Federal Reserve would have limited ability to quickly end the credit crisis motivated buyers.  European equity markets are generally lower by about 1 percent and that has drawn some to the safety of the risk free asset class.  Mixed economic news did not stop the advance as a drop in German unemployment (to 8.0 percent from 8.1 percent) took a back seat to news that French consumer confidence had dropped to a 20 year low.
The yield on the benchmark 2 year note has dropped well below 2.00 percent again and is 7 basis points lower at 1.93 percent. (The dealer underwriting community shot the taxpayers in the big toe on this one as the auction clearing level yesterday was 2.045 percent.)  The yield on the 5 year note dropped about 8 basis points to 2.81 percent.   (The Treasury will saunter through the marketplace again today and will offer $16 billion 5 year notes to investors at 100PM ET.)  The benchmark 10 year registered a decline in yield of 5 basis points and sits at 3.80 percent while the out of favor Long Bond fell 4 basis points to 4.61 percent.
The 2year/10year spread rests at 187 basis points.
The Commerce Department will revise the first cut of data on Q4 GDP at 830AM ET. Economists expect the initial report of 0.6 percent to be revised to 0.8 percent.
This is Thursday so it is time for the weekly report on first time filers for unemployment.  The series has recently jumped and the four week moving average has increased to 360.5K providing real time evidence of the softness in the labor market. Forecasters expect little change in this series.
As I noted in my closing commentary yesterday, the investment grade spread markets, for the most part, put in a stellar performance. The corporate bond market has manifested small signs of life and the OFHEO announcement sparked huge buying of mortgages.
That nascent recovery has not reached across the aisle to the toxic waste which has inspired the credit crisis.  So as an example, the single A 07-2 tranche of the ABX which closed on February 22 at 21.88 has dropped in price to 18.94 at the close of business yesterday.
JJJ

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