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Bonds Move in Line with Stocks

Wednesday was another vacuous session for both stocks and bonds. Fed Chairman Greenspan threw no bone to the markets on rates in his trade policy speech. In shades of 1929, however, he did warn against elevated risk of protectionism at a time of slowing growth.

Greenspan joined a parade of other Fed members who struck a hopeful tone that the economy would recover in the second half. Yet, among them, McTeer and Moskow seemed to lay the groundwork for a rise in unemployment going forward and McTeer warned about a confidence catalyst like China toppling the economy into recession.

The June bond continued to find support ahead of 103-16 Friday lows, but momentum was clearly lacking over 104. The curve continued its inexorable steepening profile at +138 basis points, hitting the widest 2s/30s spread since July 1994 as the zombie-like stock market and China tension kept a bid under short-dates.

This leaves the front-end very rich going into payrolls, and U.S. Sec. of State Powell did deliver a half-apology to China over its lost pilot.

Stocks traded around rumors of Lucent's bankruptcy, which the company later denied.

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