With Fed Chairman Greenspan looming Wednesday, Tuesday's bond activity was mostly a reaction to equity flows following Oracle's mixed earnings overnight. Software giant Oracle's profits tanked, but cost-cutting saved the bottom line on sales and forward spin was optimistic that "the worst was past." But investors proved more pessimistic than CEO Larry Ellison in the end and after the initial stock surge, broader indices bled into the red by the close.
Mixed housing starts data and private retail surveys played second fiddle to the equity mood swing, which sent the September bond +5/32 higher by the close to 101-07. Initially the belly of the curve softened, particularly 5s after the Fannie Mae $5 billion launch of that tenor, but bills and 10s outperformed in the end. However, dealers confirmed that flows were primarily dominated by unwinding of bullish curve trades following tempered Fed easing expectations, relative to last week's Fed funds surge (following IP and stock declines). Both the CRB and JOC commodity indices tested cycle lows, a sign that disinflation may still be a greater risk than inflation at this stage.