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Bond Expert: Friday Outlook

by: John Jansen posted on: August 01, 2008

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Prices of Treasury coupon securities have posted, on balance, small declines in overseas trading. The yield on the benchmark 2 year note is unchanged at 2.51 percent. The yield on other benchmark issues has climbed by 1 basis point. Thus, the yield on the 5 year note is now 3.25 percent. The yield on the 10 year note is 3.95 and the yield on the Long Bond is 4.58 percent.The 2year/10 year spread has widened to 144 basis points.

Economic data released during the European trading session reflects a deteriorating economic situation.

German retail sales slid 1.4 in June from May when they had climbed 0.5 percent. Prognosticators had expected a decline of 0.5 percent.

Eurozone manufacturing PMI in July was 47.4 as it slipped from 49.2 in June. This was the lowest reading for this series since June 2003.

The UK Purchasing Managers Index fell to 44.3 in July and was the lowest reading for that series since December 1998.

European stocks have generally declined between 0.5 percent and 1.0 percent.

Economic news from Asia and the Pacific region was glum.

The focus today of course will be the jobs data release in the U.S. The expectation is that the economy shed 75K workers in July and that the unemployment rate climbed to 5.6 percent from 5.5 percent in June.

There is a wealth of detail in this report. I will look at average hourly earnings to see if there is any hint of inflation. The government sector has been a provider of jobs as the private job market erodes. With the fiscal situation of many municipalities turning corrosive it will be interesting to see if that sector has turned wobbly.

Payrolls have declined on average 73K per month this year. It is hard to anticipate anything other than a sharp decline.

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