Treasuries Tuesday enjoyed a solid bid after a rocky start following the Freddie Mac $6 billion 5-year global pricing. Emerging market woes and fresh equity declines put the icing on the cake, sending the front-end of the curve higher, then the belly.
Rate lock unwinds competed with dealers making room in their portfolios for the issue and the initial rebound in stocks. But confirmation of a recession for the high tech Singapore economy and short-term financing difficulties for Argentina cemented a flight-to-quality bid across the curve. Rumors that Argentina might cancel its Letes and Bontes T-bill auctions swirled, though the country opted for the pain of higher rates rather than the stigma of cancelation.
The September bond finished off its highs, but still impressed with a 14/32 gain to 101-10 by the close. The 2s/30s spread widened out to +163bp.
The weight of Alcatel and Corning warnings eventually took a toll on Nasdaq, which sank below 2K ahead of Motorola and Yahoo tomorrow. A roll of up to 20K 10-year 109 calls from Sep to Dec was dominant early on. Hawkish St. Louis Fed" Poole groused about inflation.