By Isobel Kennedy

NEW YORK, Nov 21 (MNI) – The effects of year end are already beginning to
be felt in the credit markets. Even though no early close was declared for
Wednesday, some strategists had their daily comments out by 12:30 p.m. ET!

It was a very muted session and the Treasury market continued to seep lower
throughout the morning.

The 10-year note hit an intra-day high of 1.69% Wednesday vs. its Tuesday
closing level of 1.656%. The issue reached an intra-day low yield of 1.55% last
week.

The market has not gotten whacked down this week, it has just edged lower
each day. Market sources offer the following reasons for the move:

1) Thursday is a full close and Friday is a half-day for the U.S. bond
markets. Japan is also closed on Friday for a national holiday;

2) Year-end is fast approaching and dealers are already in the process of
paring positions for the usual year-end window dressing purposes. Buy side
accounts also start closing their books at this time of year;

3) During the “risk-off” move that occurred after the U.S. elections on
November 6, many people shed stocks and other risky assets. The proceeds from
those trades naturally found their way into risk-free Treasuries. In other
words, people are already long;

4) The preliminary Barclays Capital month-end extension for Treasuries is
only a modest 0.07 years this month. Historically, however, in the past
12-months, this index extensions has been as low as 0.01 years and as high as
0.09 years;

5) The markets must absorb $99 billion in new 2-year, 5-year and 7-year
notes next week;

6) While there is still a great deal of uncertainty ahead for the U.S. and
Europe, there is also the chance that some of this gets solved;

7) The market needs a steady dose of bad news to maintain current levels.
The much expected ceasefire between Hamas and Israel was announced by Egypt on
Wednesday;

8) The economic data has not been too bad lately even considering the
effects of Hurricane Sandy. And while it will take some time to get “clean”
data, keep in mind the U.S. data had been doing pretty well before the storm
hit.

Of course, the real truth about the lethargy in the bond market Wednesday
probably has to do with the fact that most players in the U.S. bond markets were
more interested in the Thanksgiving festivities than the boring bond market!

On the data front Wednesday, the Bloomberg Consumer Comfort Index came in
negative 33.9 vs. a negative 33.1 last week. The final November
Reuters/University of Michigan Consumer Sentiment printed at 82.7 vs. the
preliminary 84.9 and the final 82.6 in October.

Initial jobless claims fell 41,000 to 410,000 in the November 17 employment
survey week. This was less than the 430,000 expected and followed an upward
revision of 12,000 revision to 451,000 in the previous week’s data.

Labor analysts warned that the data is still being distorted by an excess
number of claims due to Hurricane Sandy.

The October Leading Indicators rose 0.2% after a revised rise of 0.5% in
September.

Pantheon economist Ian Shepherdson says the LEI had big contributions from
the steep yield curve, the credit index and a drop in jobless claims.

But “for November, the drop in stocks will hit, as will the post-Sandy
surge in jobless claims, so the index will likely dip.”

BTM-UFJ economist Chris Rupkey said the hurricane “is going to lead to
some, at least one, weak monthly employment reports, starting with the November
data released December 7. Payroll jobs could slow to almost zero from a healthy
171K gain” in October.

Jefferies & Co noted the 4-week moving average for November unemployment
claims “is 29.75K higher than for the October reference period. This alone
suggests that the November employment data will be softer than in October and
suppressed by Sandy.”

Still, the news is not all that bad. And even many on the East Coast have
plenty to be grateful for despite the sadness, loss and tragedy caused by Sandy.

We want all our readers who celebrate Turkey Day to have a great and
relaxing one. And we want all our other readers to have a great weekend.

Talk From The Trenches will not be published on Friday, November 23.

NOTE: Talk From the Trenches is a daily compendium of chatter from
Treasury trading rooms, as well as some sister market trading rooms, and is
offered as a gauge of the mood in the financial markets. It is not necessarily
hard, verified news.

–email: isobelk@mni-news.com

** MNI New York Newsroom: 212-669-6430 **

–email: ikennedy@mni-news.com

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