Both stocks and bonds succumbed to profit-taking on Wednesday, the day before key Greenspan testimony to the Senate Budget Committee. Treasuries started on firmer footing thanks to some back-peddling on yesterday's Fed sources 25bp cut story, but the move and subtle curve flattening into the two-year note auction didn't last long.
The Mar bond peeked just above 103, but offers spread around by a leveraged account took a toll after the auction and razed stops below 102-12 initial intraday lows before the dust settled at 102-06. The Treasury announced a $1 billion buyback of callable bonds for tomorrow, which was smaller than expected, but this had only cursory impact on the market.
Non-governmentt supply, both priced and launched, was abundant and concentrated mainly in the intermediate area, including Ford (F
, Lehman Brothers (LEH
, Federal National Mortgage (FNM
and Albertsons (ABS
. Word of large option deals was also heard: one shop a seller of about 7.5K 103 and 104 puts on June 10s combined and a buyer June bond puts. Another shop was a buyer of 3.5K March bonds after the latest Fed fib, which accounted for the brief jump to 103.