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Greenspan proved without a shadow of a doubt that he still leans to the pessimistic side on the economy in his Senate testimony on Tuesday, dashing hopes that market participants might have misread him last week in the House. In a more contentious Q&A session, however, the Fed wizard said the "litany of negatives" in his prepared remarks have so far "not cracked underlying stability" in the economy fostered by the housing market.
Stocks had another cold earnings shower, with Lucent, AT&T and Amazon.com results suggesting that the recovery cup is still more than half empty. The September bond ricochetted between 103-20 congestion and 103-08 support several times as Greenspeak was digested, but made a late topside break as equities sank to session and June lows.
Tons of non-governmental supply washed through the market (CS First Boston, Tyco, QWest, etc.), with prices jumping and receding as hedges were locked and lifted. Prices along the cash curve remained steadily firmer, as front-end and back-end yields bumped into 3.9% and 5.5% support, respectively. The 2s/30s curve consequently remained mired mostly between +158 basis points and -160 basis points.