Rate lock unwinds competed with dealers making room in their portfolios for the issue and the initial rebound in stocks. But confirmation of a recession for the high tech Singapore economy and short-term financing difficulties for Argentina cemented a flight-to-quality bid across the curve. Rumors that Argentina might cancel its Letes and Bontes T-bill auctions swirled, though the country opted for the pain of higher rates rather than the stigma of cancelation.
The September bond finished off its highs, but still impressed with a 14/32 gain to 101-10 by the close. The 2s/30s spread widened out to +163bp.
The weight of Alcatel and Corning warnings eventually took a toll on Nasdaq, which sank below 2K ahead of Motorola and Yahoo tomorrow. A roll of up to 20K 10-year 109 calls from Sep to Dec was dominant early on. Hawkish St. Louis Fed" Poole groused about inflation.