Tuesday was a day of ups and downs, for the long-end and for Fed Chairman Greenspan who suffered a head cold on his birthday. The bond enjoyed a flurry of short covering in the morning thanks to a friendly combination of factors, but got snowed under by the end of the session in frost-bitten volumes as the winter storm settled into the Northeast.
The June bond led the pack, rallying to 105-09 despite a firm run by stocks, but later slumped to close -6/32 at 104-20. The $16.5 billion France Telecom deal was heavily oversubscribed and spreads set, which allowed some hedge locks to come off, helped by the multiple step-up clauses which compensates investors for any ratings downgrades.
Hedge fund buying was also spotted on the bond from the lows of 104-13, with a long-dated Fed coupon pass and a sharp 3.8% decline in Jan factory orders also lending a helping hand. Q4 productivity was revised lower to 2.2%, but not as deeply as expected.
The stock rally was impressive, but was built on the shaky foundations of low volume.
Fed speakers Poole and McTeer appeared to nix intermeeting rate cut talk (Tuesday or Friday rumored).