Opening Comments September 25 2008

Prices of Treasury coupon securities have posted bifurcated results in overnight trading as the meandering progress of the bailout package through the labyrinthine legislative process colors trading patterns. President Bush spoke last night and his public commentary added little to our store of knowledge on the topic.However, the Wall Street Journal reports that legislative negotiators have made solid progress in advancing the bill. The Journal reports that substantial progress has been achieved regarding rigorous oversight, executive compensation at assisted entities and provisions protecting taxpayers.The Journal also reports growing support for funding the deal on some sort of installment plan basis in which the money would be delivered to the Treasury in tranches.

Progress on the bailout bills has boosted stock prices in Europe and has also provided a boost to equity futures in the US.

Strains in the money markets, however, remain severe as three month Libor has just set at nearly 3.77 percent, which is an increase of more than 29 basis points from levels which prevailed yesterday.

The bond market, thus far, has chosen to ignore the strife in the money market but instead has given credence to the progress of the bailout bill. Against that background the Treasury yield curve has flattened. The yield on the 2 year note has climbed 5 basis points to 2.05 percent. The yield on the 5 year note has climbed 1 basis point to 2.93 percent. The results have been just the oppositein the longer maturity benchmarks as the yield on the 10 year has slipped 2 basis points to 3.79 percent. The yield on the 30 year bond has dropped 1 basis point to 4.40 percent.

At this hour of the day I do not have good sources on the T bill market. Bloomberg has a public page and that page indicates that the yield on the three month bill has climbed by 22 basis points to 68 basis points.

In overseas news German consumer confidence surprised the experts and climbed for the first time in five months.

I doubt, however, that Irish eyes are smiling as the economy in that country contracted for the second quarter in a row. Two consecutive quarters of negative growth is the traditional marker of a recession.

In the US markets today participants will advert in the direction of Washington DC and news on the progress of the bailout bill will dominate trading.

There is a real economy and there is some pertinent news on its status today.

The Labor Department will release the weekly initial claims report in about an hour.

Simultaneously, the Commerce Department will make information available on orders for durable goods.

Finally, the dealer community will risk its scarce capital today as the Treasury auctions a block of 5 year notes.

Originally published at Across the Curve and reproduced here with the author’s permission.