Treasuries were soft at the close on Monday, with longer dated paper leading the drop. There was little news behind the move. Pre-Greenspan squaring was noted and the softer tone in the spreads was indicative. A recovery in the stock market was also topical. However, volume was light and traders were cautioned from reading too much into the session decline.
Indeed, the drop left the longer-term pattern intact and we looked for prices to extend the "flagging" formations set in place over the last few weeks. These patterns measure to "well above" contract highs and a more conclusive run toward target resistance is expected over the next few days. The March bond was off over a half point on the day, with prices erasing the gains set Friday at one point.
A continuation lower in early dealings on Tuesday would not surprise but a conclusive move below the 103-24 low for February would. A run back over the 105-03 peak from Feb. 9 would force a violation of the 105-14 high from Feb. 1, setting the wheels in motion for a test of the 106-20 high. There is plenty of action on the docket for Tuesday and a clearer understanding of intentions should unfold.