Commentary prepared by Tom Slefinger, Senior Director of Trading,
Balance Sheet Solutions, LLC, Member FINRA/SIPC
Friday, May 18, 2012 at 8:00 a.m. CST

Today's Market Commentary
The Treasury curve bull flattened dramatically on Thursday, with two-year yields rising one basis point, five-year, 10-year and 30-year yields declining one basis point, six basis points and 10 basis points, respectively. In fact, yesterday’s 10-year Treasuries reached an all time record low closing yield of 1.7%. Economic data were weak as Initial claims printed higher than the consensus and the previous value was revised higher. In addition, the Philadelphia Fed index declined to -5.8 from 8.5. Risk aversion also increased as economic data in Europe were weak, with the q/q GDP in Spain printing below zero for the second consecutive quarter. Also of importance, Moody’s cut the ratings of 16 Spanish banks by one to three notches. 

Asian markets were down in overnight trading, with the Nikkei plunging nearly 3% on concerns about slowing growth in China. Latest statistics showed that home prices in China fell in 46 of the 70 cities in April, from a year ago, with prices in Beijing and Shanghai down 1% and 1.3%, respectively. China's car dealers are also reportedly facing rising stockpiles with dealerships for certain automobile companies having carried more than 45 days of inventory at the end of April. The China Securities Journal overnight also reported that China's GDP may further slow to around 7.5% in Q2 from 8.1% in Q1.  

A quick update on Greece, the Wall Street Journal noted that support for the Radical Left party, Syriza has grown even more according to the latest poll yesterday. Syriza would receive 22% of the vote if elections were held today, more than five percentage points higher than its May 6 result. Obviously this is not good for those looking for stability in the Euro zone.

Looking ahead to today, we can expect a fairly quiet day as far as data flow is concerned. We suspect all eyes will be on European headlines again and it will certainly be interesting to see how markets will react ahead of the G8 Leaders' Summit this weekend at Camp David, Maryland given that Europe will be the major topic of discussion.  

Europe is mixed and U.S. futures are modestly higher in pre market trade. In fixed income land, Treasury yield are two to three basis points higher on the long end of the Treasury yield curve. Currently 10s’ are trading at 1.76% while the front end is unchanged with 2s’ yielding 30%.

We have very little data today and a $4.875 billion 10-year Twist purchase (8/20 - 5/22).  

May 14 - May 18 : The Week Ahead

Sources: Bloomberg

**All quoted rates are indications and are subject to change without notice.

* Balance Sheet Solutions, LLC is a member of the FINRA/SIPC.