Stocks were burned to a crisp Tuesday, but the losses didn't ignite much of a fire under the bond, which only gained 7/32 on a day where Nasdaq losses topped 120 points intraday. Sources reported little buying interest in bonds. Instead, players sought refuge in shorter dated Treasuries, driving bill yields down some 10 basis points and knocking nearly 10 basis points off the two-year note. The curve extended its steepening bias with the 2s-30s spread widening out through 134 basis points(widest since July 1994).
Fed funds futures climbed on the day, reflecting increased risk (about 30%) for an intermeeting rate cut. With the exception of the demand for liquidity, buying interest in Treasuries was lackluster ahead of Greenspan's testimony Wednesday and payrolls on Friday. Stocks had another rough day after more warnings from numerous high-profile tech names hit after-hours on Monday. Sellers completely dominated the session with few willing to step in on the buy side.
Weaker than expected data had little impact, nor did generic comments from Fed officials.
USD-EUR took a hit on equity weakness.