Bond Market Open August 31 2009

August 31st, 2009 7:41 am | by John Jansen |

Prices of Treasury coupon securities are posting solid gains in overnight trading. Equity markets around the globe have turned wobbly and that has sparked a search for safe haven assets. In addition, today is the last day of the month and the much anticipated index extension is upon us and that will provide a basis of support for the market throughout the day. (Or should.)

The yield on the 2 year note has declined 3 basis points to 0.98 percent. The yield on the 3 year note has also declined 3 basis points to 1.50 percent. The yield on the 5 year note has dropped 3 basis points to 2.41 percent. The 7 year note is the biggest winner overnight as its yield declined 4 basis points to 3.05 percent. The yield on the 10 year note dropped 3 basis points to 3.42 percent and the yield on the Long Bond declined 1 basis point to 4.19 percent.

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

The 10 year/30 year spread is 2 basis points wider at 77 basis points.

The 2year/5 year/30 year spread is 2 basis points richer at 35 basis points.

Stocks in China stumbled and fell nearly 7 percent in overnight trading. Bloomberg carried a story which noted that loan growth in August increased 200 billion yuan following a nearly 356 yuan increase in July. That set some to wondering about growth in the months ahead and dragged down other regional stock exchanges. An FT story notes that the change of government in Japan should have been a reason for equity market joy but Japanese markets posted small losses.

Bloomberg also carried a story which said that China is cutting imports of raw material and a Bloomberg survey expects shipping prices to plummet be 50 percent.

Industrial Production in Japan climbed 1.9 percent in July from June. The index had posted a month on month gain of 2.3 percent in June.

Retail sales in Japan fell at a 2.5 percent pace YOY in July. That was the eleventh consecutive decline.

Eurozone CPI fell a less than expect 0.2 percent in August YOY.

Shares of Irish banks took a pounding as a report indicated that the government might cut the size of initial payments for bad assets. In a novel approach the bank said it would withhold the remaining 20 percent and that payment would be contingent on the value of the asset.

UK home prices rose for the first time since 2007.

Today we receive the Chicago area PMI and the consensus forecasts an increase to 48 from 43.4 in July.

There are no Open Market Desk interventions planned for today.

The path of the equity market will play a heavy part in driving bond prices today. If stocks remain under pressure dealers will be cautious sellers and the index extension buying could push the 10 year note into the 3.30s.

Be Sociable, Share!

Post a Comment