Another rough day in bondland, with a strong "Santa Claus" rally on stocks from key technical levels the principal antagonist. Other negative factors were a two-year high posted by the NAHB housing index to 65 and a two-month high on oil, though, truthfully, the bond market collapsed mainly due to a lack of interest and protection of year-end profits.
Several analyst boosts to U.S. stock allocations vis-a-vis European holdings, including those of Lehman and Goldman, helped inspire the 2-2.5% shopping spree on Wall Street, while European bourses gained 3-4% on French banking M&A speculation and surging energy market shares. Another potential ultimatum on Iraq weapons documents this week and oil supply disruptions from Venezuela propelled NYMEX Jan crude above $30/bbl for the first time in two months.
Stocks managed to shrug off the energy sticker shock and appeared to have the upper hand after key indices bounced from their 50-day moving averages and enjoyed a visible "outside day." Impending supply may have intruded as well, with housing agency Fannie Mae prepping a $6 billion two-tranche offering and the two-year note auction lurking next Monday.
The March bond closed down 29/32 at 109-4/32, while the two-year not and 30-year bond spread widened two basis points to +211 basis points.