Bond Market Opening September 17 2009

September 17th, 2009 7:34 am | by John Jansen |

Prices of Treasury coupon securities are posting modest losses in overnight trading in a continuation of yesterday’s selloff.

I was not planted here at my work station yesterday but roaming through the myriad of emails I receive it seems that one of the reasons for the weakness yesterday was a report by an advisory firm, Smick Medley, that the Federal Reserve Reserve at its upcoming meeting would comment on and discus raising rates sooner rather than later.

I would dissent from that view. I think that they will acknowledge the bottoming out in economic activity and the period of stability which some believe we have entered. Mr Bernanke himself noted the other day in a Q and A that he thought the recession was ” technically” over. He also acknowledged the difficult headwinds which the economy faces and the particular weakness of the labor market.

I think the biggest factor in the sell off yesterday and overnight is supply. The Treasury will announce a package of 2 year notes, 5 year notes and 7 year notes with auctions next Tuesday, Wednesday and Thursday. Analysts expect a package of between $ 110billion and $ 115 billion and in my opinion that is why the market is under pressure.

In overnight trading the yield on the 2 year note increased 2 basis points to 1.00 percent. The yield on the 3 year note climbed 2 basis points to 1.55 percent. The yield on the 5 year note edged higher by 2 basis points to 2.46 percent. The yield on the 7 year note also increased 2 basis points to 3.11 percent. The yields on the 10 year note and the Long Bond increased a basis point to 3.48 percent and 4.27 percent, respectively.

Several key pieces of the economic puzzle are available this morning.

It is Thursday so wee receive the weekly (weakly,too) initial claims data. The series posted a sharp decline last week to 550K. The consensus calls for a small increase to 555K. Labor day was later than usual and apparently the number will be a little more volatile than usual because of some seasonal adjustment problems associated with the lateness of Labor day.

Housing starts should post a gain to 596K in August from 581K in July.

Philadelphia Fed index should read around 8.0

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