Tuesday paled by comparison with Monday's wild ride, with Treasuries finishing just under water. Despite stock declines, Treasuries lost their grip as a pile of new corporate issuance and thin trading conditions conspired to crowd out the underlying paper.
Prices were leavened for much of the session by weak auto sales data, and news that Merrill Lynch had upped its recommended bond allocation by 5% to 35% and cut its stock target to 45%.
But, the flip side of Monday's technical bounce led by "black box" buying also helped put a lid on gains. GECC and MetLife served up $5 billion in five-year and 10-year notes and bonds between them, which left only cash two-year notes in positive territory by the close.
War rhetoric from the Bush Administration kept the front-end relatively elevated and euro$ futures bid lightly across the maturity spectrum. BTM and Redbook weekly retail sales posted 0.3-0.5% gains, while Challenger layoffs declined 11% to 157,000 in November.
The March bond closed down 5/32 at 107-30 after stalling out at 108-21, while the two-year note and 30-year bond spread steepened two basis points to +299 basis points .
In addition to the Merrill asset shift, AOl-Time Warner warned of potentially protracted declines in advertising revenues and U.S. stock indexes closed some 1.5%-2.5% lower.