Its Just Crude :  The bonds are working back some, with the long end doing the heavy lifting for the moment in slowing action.  The market will continue to be somewhat of a puppet to what the stocks pull, but there remains fundamental support (all the bad news, barreling crude prices dragging on growth, new cash looking for safer places to land, less supply in the pipeline, reported fund buying) while players say the overnight and early buyers will be behind any sell-offs (mild).  Resurgent credit concerns are also working in the bonds favor, but as the day drags on and traders back away, things will get choppy and any downside will be exaggerated. 

Holding Gains, Barely : The market is grasping around trying to hold onto positive ground as stocks attempt to recover off their early session lows. Trade has been on the light side and the data were largely dismissed, leaving prices vulnerable to technical levels and equity swings, both of which are weighing into midday. The dollar is trying to correct all of its overnight losses but its latest boost looks mostly position squaring into the London close.

Cash to System : Fed adds $3.5B via weekend repos.

Snagged on Little Orange Line : The continuous 10-yr futures contract elbowed its way up to the daily up trend line (orange) that is now resistance near 116-16 but has since backed off. Bids are under pressure near 116 with help below at 115-21 and 115-13. Above see brighter skies ahead with resistance at 117-07.

Stalled : Trade has been waddling along in a fairly tight range struggling with those last 5lbs of stock trade spillover where an attempt at a comeback is weighing.  Nothing much on the horizon to alter the course but further news on financials would give, if nothing else, a slight pop.  The curve has reverted to near unchanged with the 2-10-yr yield spread running at 155.3 in light trade. 

Sluggish:  The market is getting added drag as the "news" on financial shop problems is digested and trade takes on a "What? Me worry over a measly $400B?" attitude and pulls out of quality issues.  Bonds are also feeling a little pain in general squaring as well as getting a little drag from a twist back off in global bonds.  There is nothing on tap to add much to trade, so gyrations in stocks will reverberate in the market as it slumps into late-Fri slowing action.

Dollar Dragged Lower : The buck is losing a slow battle as trade continues along several paths, none of which are benefiting the dollar bulls right now. The less-hawkish expectations via ECB are being priced-out gradually, despite weaker growth expectations giving the euro a bit of nudge higher. Also, risk aversion on soaring oil and slumping stocks fuels a carry unwind propping the yen across the board. The buck will need to make a stand soon in order to curtail waning sentiment as the burden of proof for further gains is shifting slowly back into the hands of the bulls.  The yen is chopping its way higher on a session-by-session basis knocking the buck down to 102.60, offers at 103.20 and 103.40 are seen as short-tem caps. The euro failed a test of 1.55 but still retains a bid on dips to 1.5430 with added support at 1.5390. The pound slipped through support at 1.95 and is now trying to plug the leaks near 1.9450 while offers at 1.9550 limit  any rebound.  The dollar index is holding above 73. Crude oil is way up at 125.52 (+1.83) after poking above 126 briefly and spot gold is up at 884.57 (+2.72).

 

Longs Leading : Trade was suffering some mild blowback, moving lower as pre-weekend squaring filtered through, but the bias remains to the buy side.  The market will be (sigh, once again) a slave to what the guys over in the stock world decide to do, which is unfortunate.  The day's complete lack of data is a negative, while the weekend safe-haven buying will aid in support.  Another issue is supply, which is less of a big deal now that the refunding is over, giving a slight edge to bond bulls. 

New Issue : Petrohawk Energy sold $500M of 7-yr notes at +455 basis points.

Finding Room to Grow : The market is grabbing a little more ground to the upside as risk aversion creeps back into trade. AIG got the ball rolling late yesterday with an amazingly awful earnings report which infected global equities and the whole rate-hike by the end of 08 crowd who have been increasingly vocal. But bad financial earnings have been long anticipated and equities have shown a formidable ability to lock such things in the trunk of their cars, so gains in treasuries could evaporate quickly. Oil continues its thrust into deep space helping fuel the flight to quality. The 2-10-yr yield spread is holding steeper at 155.2 with the short end bid. The 2-yr yield is trying to break its upward bias but it will likely take a push below Fed Funds at 2% to really alter risk sentiment. Bond prices in the EuroZone and Japan were given a ride higher by the flight to quality. Treasuries have little to work with today. Technically, the market still has a ways to go to reverse the medium term correction but it has slowed the downward price pull. A press back below 3.500% on the 10-yr yield should do the trick but data next week will need to conform to the worst expectations to pull that off. The dollar continues to lose ground as the push/pull spiral of spiking oil blends better with a declining buck, despite the recovery-ist's best intentions. Spot gold is up a bit at 886.05 (+4.20) while crude is off somewhere in hyper-space at 125.07 (+1.38). The trade balance hits early (8:30).

Table of overnight activity in the financial markets.

Oil Fuels Further Gains : The bonds had a nice little pop up today, getting early flight-to-quality on concerns of saber rattling in Russia, got a little added bump on the jobless report and churned their way better through the session.  The week's auctions ended today with the so-so showing in the 30-yr, leaving Treasury quiet through the end of the month.  The Fed threw a $50B28-day TSLF, and almost nobody came, leaving nearly half the offering unbidden.  The early part of the session saw hesitant rallying, with the short end leading, but trade got more committed after the auction (if on lightening flows), hitting new highs into the close and took the ongoing rally in crude as an opportunity to extend gains after the bell. The calendar is essentially empty tomorrow too, playing along in the week's (yawn) theme, and outside of some profit-taking, bonds should consolidate near the highs. The curve was twisted well steeper early, but slanted back to ends the day about mid-range, near unch on the 2-10-yr yield spread at 155.4.  The buck batted around 1.54 much of the day on the euro while the yen backed off early gains below 103.50. Trade on the dollar has leveled off as near-term direction gets sorted out. Crude settled up at 123.69 (+0.13, currently 124.25 +0.72) and spot gold is at 883.17 (+14.42). The calendar has just trade balance (8:30).