Markets & Finance

Treasuries Collapse as Fed Expectations are Pared Back

By Tuesday's close the curve lost its initial bid and prices fell sharply, whipsawed by an infestation of Fed sources stories which crept into the policy pot in thin conditions ahead of Greenspan's Senate Budget Committee testimony. Though Senate focus should be on his macro view of the monetary/fiscal policy mix, markets are keying off any rate cues ahead of next week's FOMC.

Technicals also weighed, with the March bond's corrective rebound faltering ahead of 103-25/29, setting up a cascade of stop loss selling below the 103-handle down to 102-15. Prices were vulnerable to the equity rally and churning activity set in motion by predictably ridiculous Fed reports. The first version claimed Greenspan was prepared to signal or pull the -50bp trigger during Thursday's testimony. Then an afternoon follow-up reckoned -25bp would do just fine on Jan-31, thank you.

Shame, the day started productively with a Bank of Canada rate cut, a 2pt CRB drop, rate lock unwinds on corporate supply, and a smattering of damp second tier retail data. Fed's McDonough and Guynn played down credit/systemic risks.

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