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Treasuries Lose Ground in Thin Trade

Treasuries rolled over and played dead to round out the week, with Federal Reserve Bank Chairman Alan Greenspan's testimony out of the way and the Federal Open Market Committee just ahead. Durable goods orders jumped 2.2%, but this will not keep the Fed from slashing rates by 50 basis points as it "was all air" -- a 94.4% jump in aircraft orders, without which the aggregate would have fallen 3.0%.

Light selling at the long end was mostly pre-weekend book-squaring, with a slight steepening bias returning to the curve. Conditions were extremely thin and technically driven, with some stops cleaned out on the March bond below 102-24 before traction returned above 102-14.

Supply remained a major obstacle crowding out Treasuries, with upsized jumbo deals left and right, including Motorola (MOT), Safeway (SWY), Federal Home Loan Bank and Small Business Administration being priced, and details of the quarterly refunding due next week. Options activity was directed mostly at selling volume, in keeping with extremely low dealing volumes. There was a seller of volume on June 10s and a seller of 2,000 106/108 call spreads on the contract, as well as a seller of 2,000 106 calls on the June bond. California remained shrouded in a "Stage 3" power alert.

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