Prices were leavened for much of the session by weak auto sales data, and news that Merrill Lynch had upped its recommended bond allocation by 5% to 35% and cut its stock target to 45%.
But, the flip side of Monday's technical bounce led by "black box" buying also helped put a lid on gains. GECC and MetLife served up $5 billion in five-year and 10-year notes and bonds between them, which left only cash two-year notes in positive territory by the close.
War rhetoric from the Bush Administration kept the front-end relatively elevated and euro$ futures bid lightly across the maturity spectrum. BTM and Redbook weekly retail sales posted 0.3-0.5% gains, while Challenger layoffs declined 11% to 157,000 in November.
The March bond closed down 5/32 at 107-30 after stalling out at 108-21, while the two-year note and 30-year bond spread steepened two basis points to +299 basis points .
In addition to the Merrill asset shift, AOl-Time Warner warned of potentially protracted declines in advertising revenues and U.S. stock indexes closed some 1.5%-2.5% lower.