It was a fitful Tuesday for Treasuries, with Greenspan's testimony and the 5-year note auction highlighting. However, in the end the markets couldn't overcome the dominance of geopolitical factors -- stocks weakened on news of another bin Laden tape, and Treasuries gained amid a curve steepening trade.
Treasuries opened on the defensive ahead of what was expected to be a cautiously optimistic report on the economy from Fed Chairman Greenspan. Prices eroded further after the Chairman offered no surprises (indeed, not even a good sound-bite), and traders turned their attention to the set up for the $24 billion 5-year sale. Greenspan's text was a litany of well-known positives and negatives confronting the economy and policy makers. He offered only a wait-and-see approach amid warnings about the dangers of out-of-control fiscal policy.
News of another bin Laden tape, which tied al-Qaeda leader Osama bin Laden to Iraq, diverted the markets' attention. Stocks dove while Treasuries gained. That sapped a lot of strength from the auction and poor results sent Treasuries back down. But by the end of the day stocks were solidly in the red on geopolitical concerns, while Treasuries rebounded. The bond lagged on curve steepening trades and supply/deficit fears.