No such luck for the smaller bond auction Thursday, which proved a bit rich after prices were dragged higher following Wednesday's squeeze on 10-year notes. The coupon curve steepened, and 10-year notes were flipped into the market and the bond lagged after a promising start. Second-tier data continued to prove favorable; Export/Import prices tumbled as global doom spread, while claims reverted to trend 33,000 higher.

Tracking the auction closely, the September bond conceded little and started to form a nice pennant formation at Wednesday's highs just above 104-00, but prices were soon flopping in the breeze back below 103-25. Demand for the 30-year paper was weak, with a low 2.16 bid/cover and awarded at 5.552% yield vs 5.495% expectations. Simultaneously, a broker dumped over 30,000 September 10-year notes on the market as the dollar skidded, though this appeared for someone loosening his stranglehold on Wednesday's auction.

Brisk selling of Euro$ futures against a fund's cumulative long position (short 175,000 puts on June 2002 Euro$) was also noted contributing to the chop.

Atlanta Fed's Guynn pushed his second-half recovery into Q4.