Sales and Inflation Data Pound Treasuries

Upticks in December retail sales and core PPI prompted dealer liquidation

Treasuries rounded out the week on the back foot, staggering after upticks in December retail sales and core PPI encouraged more dealer liquidation as confirmation of the worst fears of economic implosion were put off for a least another month.

Front and middle maturities were hurt the worst, having outperformed on an agressive Fed scenario, but even prices at the long end took it on the chin. The Mar bond closed below 103, over 3-pts lower than its highs just last week, amid large dealer selling of up to 10K apiece on Mar 5s, 10s and bonds. One shop added to a long 106-107 call spread on Mar 10s -- likely a vol trade. Equities finished the week ambivalently, though on much firmer ground after successive remarks from Fed members holding out hope for growth in the second half of the year.

A shaky start was led by warnings from PC makers Hewlett-Packard (HWP ) and Gateway (GTW ) and some confusion over Ariba (-18%). Fed VC Ferguson vowed the Fed would act "prudently and forcefully," but saw the economy picking up in the latter half of 2001. U.S. markets closed early ahead of the long weekend, with Martin Luther King Day Monday.

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