Bond Market Open July 31 2009

July 31st, 2009 7:24 am | by John Jansen |

Prices of Treasury coupon securities posted modest losses in overnight trading as participants await a flood of data today with most honed in on the first peek at Q2 GDP.

The yield on the 2 year note has climbed 2 basis points to 1.18 percent. The yield on the 3 year note is a basis point higher at 1.68 percent. The yield on the 5 year note climbed a basis point to 2.64 percent. The yield on the 10 year note is a basis point higher at 3.62 percent and the yield on the Long Bond increased 2 basis points to 4.43 percent.

The 2year/10 year spread is 244 basis points.

The 10 year/30 year spread is 81 basis points.

The 2year/5 year/30 year spread is 33 basis points.

As you can observe, there was very little movement in any of those relationships .

The key piece of data today is the GDP report. The consensus expects a decline of 1.5 percent which is a sharp improvement from the 5.5 percent contraction of Q1.

There should be a healthy improvement in final sales. My friends at UBS expect final sales to have fallen at a 0.2 percent pace in Q2 after a steep decline of 3.3 percent in Q1.

UBS economists anticipate that inventories plunged $ 125 billion in Q2. That would be an annualized rate of decline of 7.6 percent and the steepest fall in inventories since record keeping began in 1947.

That mix of improving final sales and plunging inventories should set the table for positive growth in the second half of 2009. We shall see.

There is other data today. The Chicago Purchasing Managers Index should post a gain to 43 from 39.9 last month.

And the quarterly Employment Cost Index should show another modest gain of 0.3 percent. Economists at UBS expect that the wage and salary component of that index was unchanged in Q2.

There was a reasonable amount of overseas economic data overnight.

In Japan unemployment rose to a 6 year high in June at 5.4 percent versus 5.2 percent in the prior month.

Consumer prices ex food declined 1.7 percent in June.

In the UK consumer confidence was unchanged and remains at its highest level since April 2008.

European unemployment increased to 9.4 percent and is at its highest level in a decade.

Eurozone prices dropped 0.6 percent YOY in June. That is the steepest decline in 13 years.

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  1. 4 Responses to “Bond Market Open July 31 2009”

  2. By HV on Jul 31, 2009 | Reply

    Sorry to be pedantic, but it’s “homed in” not “honed in”.

  3. By juan motime on Jul 31, 2009 | Reply

    This is neither here nor there, but I’ve read many times that the President of the U.S. gets the nonfarm payrolls number the day before the rest of us do.

    Obama met with reporters briefly yesterday and said the GDP number will show contraction.

    Maybe I’m reading too much into the way he said it, but I got the feeling that he might have seen the number already, and his tone makes me wonder if the number will be worse than the consensus forecast.

    Does anyone know if the Presdient gets the GDP number a day early?

  4. By John Jansen on Jul 31, 2009 | Reply


    Pedantic is fine as is pedagogical!!

  5. By Alex on Jul 31, 2009 | Reply

    Inventory drawdowns overdone?

    Benchmark revisions to GDP reveal weaker growth on balance, particularly for 2008, but RBS’s Alan Ruskin notes that this provides “a lower base to build on for growth in H2 2009.” Notes big rise in govt spending (+10.9% in 2Q after drop in 4.3% in 1Q) and “stunning” inventory drawdowns in 1H (subtracted 0.83 & 2.36 pts from overall growth in 2Q and 1Q) – which again bodes well for 2H growth. Ruskin expects data to add to 3Q GDP forecasts and “therefore playing to the positive risk tone.”

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