Treasuries were on the defensive again Thursday, with the March bond off a point intraday, thanks to signs the economy's downturn might prove shallow indeed. Comments from Fed officials, gains in stocks, and economic data added to the notion put in place by Fed Chairman Greenspan Tuesday that the chances of a recession are slim. Technicals and supply also added to the day's declines.
Bonds started the session on the heavy side as recent short-end weakness was extended to the long end. Losses were magnified as equities looked to put in a healthy. Though bottom-fishers helped contain the early weakness, sellers maintained the upper hand.
The break of key support levels exacerbated the slide. A better-than-expected rebound in the Philly Fed data, especially within the expectations component, and comments from a number of Fed officials who toed Greenspan's line (McTeer suggested we were near the bottom of a "V" shaped recovery) tortured the bond further. Supply kept the belly of the curve under water.
Fed funds futures fell hard, reflecting diminishing risk (about 38%) of a 50- basis point cut at the March FOMC meeting.