1:30 pm - Sold Off, But Better on Week: Bonds had another rough day heading into the long weekend with traders reporting that much month and week end related buying came through earlier in the week as desks would be empty today.  The mixed data was not very bond friendly and after an attempt higher early was thwarted by numbers, prices caved in thin trade.  Continued inflation worry talk out of ECBers added weight to bonds.  Short coverage offered some selling opportunities but the recent 10-yr range remained in play (see 12:01 comment) but they should make a concerted effort to bust out one way or the other, although trade may remain paralyzed through to payrolls.  Prices remain vulnerable to the downside and early week action will likely be weak.  The curve made a late session push steeply steeper with the 2-10-yr yield spread heading out at 150. The dollar pressed higher into the close despite weak equities. Trade is eyeing another fumbled rally in crude even though Gustov is setting up to bowl over a bunch of refineries and rigs in the Gulf. Spot gold is off at 831.45 (-2.60) while crude pared gains to settle up at 116.05 (+0.46). The shortened week sputters out the gate with construction spending and ISM (Tues) but heads out with a roar on Fri with payrolls. 

1:09 pm - Buck Roams Ranges : The dollar came into the week aiming higher but the lack of market depth held sway, keeping trade rangebound despite some positive catalysts. Data were mostly supportive and provided occasional swings for short termers to ride while volatility in equities and oil kept things almost interesting at times. But mostly the market was content to ride out the last week of summer with a slightly bullish buck leaning while holding its cards close to its chest for the seasonally challenged month ahead. Next week has payrolls and not much else. Trade will remain consolidative with a buy dips bias into that event risk as volume wanders back from vacation. The euro has support near 1.4580 offered near 1.48 and 1.49. A break lower will target long-term support near 1.4440. Against the yen, the buck has support at 108.10, offered near 110.65. A break targets 113.30 and below will want to test 106.60. The pound is in an utter free-fall with momentum carrying it lower despite its oversoldness. A break of 1.8315 targets 1.7430 longer term but some support may crop up near 1.8090. Its latest break down from mid-Jul's 2 shows a complete lack of confidence in the BOE and its handling of policy and pain being inflicted on the economy (see 1992). Spot gold is off at 832.58 (-1.47) while crude is up at 116.74 (+1.15).

 

12:01 pm - Pushing Boundaries :  They're going after the lows, but with very little behind the move.  Trade is having trouble at the session lows, with a bit of a barrier on the 10-yr near the 3.835% yield level, but if the market gets riled up and decided to go after stops it could be a quick trip off to tag 3.855%. The curve was flipped back steeper but is still holding near the week's average level.  The countdown to the close begins.

 

11:47 am - Stung on Data : The market has been losing ground again after a pull back on some position squaring but the 10-yr has held within the 3.76% to 3.835% range and won't likely get a whole lot more here today (see 8:44 comment), but a lack of size will exaggerate wider swings.  Players will be eyeing stocks (oil), but a meltdown will get a lightened response from bonds with the shortened session and long weekend sucking the life, or what little there was, out of trade.  The 30-yr is feeling the weight of the bump in inflation concerns and there has been a minor uptick in expectations for the Fed to pull a quarter point rate hike out in Jan, but trade remains on board for no action this year.  Global and EuroZone bonds were generally dragged down earlier with treasuries and have had a similar, minor, recovery.  The curve is near flat on the day after swinging around on either side of unch with the 2-10-yr yield spread now 146.8. Personal income was down while spending was up. Chicago PMI was better and there were modest upward revisions to UofM. The dollar got a boost but follow-through has been weak. Spot gold is up at 834.27 (+0.22) while crude has softened up a bit at 117.66 (+2.07). The shortened session sees financial futures and options close at 13.

 

11:04 am - Aiming for Unch : The market is pulling itself up off the early lows with data not overly supportive, apart from the declining employment detail in Chicago PMI and personal income slipping a more-than expected 0.7%. But trade mostly eyes the early close, long weekend, stocks and oil pretty much in that order and as long as nothing outrageous happens prices look to coast into the weekend without having given up too much ground. The dollar tried to rally off the data but that has met with some profit taking and a general lack of interest.

10:39 am - Nicking Back : The market has been trying to get some back with a steep drop- off in volume following the steep drop-off in prices.  The rundown was accompanied by an equally steep tumble in most EuroZone bonds as holiday thinned markets add swing to prices.  The 5-yrs have been whipped hardest on the day following yesterday's auction with other maturities trailing.  There is nothing left on the calendar and outside of some month and week end buying trade may be beholden to the machinations in stocks.  The low level trade isn't being helped as the bond futures continue trade mostly spreads rolling out the calendar ahead of the Sept expiration. The shortened week ahead will start to see some real, solid action coming back in, but it will take a while for volume to get back to real world size.

10:37 am - New Issue : Schlumberger sold EU500M ($735M) of 5-yr notes at +63 basis points. (Bloomberg)

10:03 am - UofM : Bonds were working back ahead of the early release on the final UofM report, which hit 63 against the expected 62.  The report saw all components doing batter while inflation expectations a year and 5-yrs out held steady.  The market should find some footing in here with some aid from falling stocks. 

09:53 am - Mini Bounce: Trade was sinking into the next set of data with the PMI hitting much better than expected with the help of export demand, at 57.9 against an expected 50 and the previous 50.8, printing near the highest since a year ago. There was a large drop off in prices paid while the employment component continued to deteriorate.  Bonds had been offered heading in and may get a minor reprieve on the low-level inflation component. 

09:39 am - Buck Grazing Lower : The dollar is working the lower end of its weekly ranges. The Gustov threat, higher oil and weak equities are all weighing while data has been less-than impressive so far. The day ahead offers little in the way of substance with pre-holiday thinned volumes suggesting any break out from the week's boundaries could be short-lived. The euro has support at 1.4660 and 1.4580 with resistance near 1.4810 and .1.4910. Softer inflation and sentiment data weighed on the euro. Against the yen, the dollar is propped near 108.40 and 108.10 while offered near 109.20 and 110.30. The yen rallied with geopolitical and Gustov fears helping send carry traders for the exits. The pound remains wedged lower with support near 1.8250 and resistance 1.8350 as its massive decline from 2 in mid-Jul moderates a bit. Spot gold is at 835.26 (+1.21) while crude is firmer at 118.00 (+2.41).

 

09:29 am - Twisted Back Off : The market flipped to the sell side even as expectations for rate hikes in 09 fall off and stocks look to open lower.  Inflation concerns are dragging on prices, but bonds should find some basic safety bids to keep things from sustaining too much damage.  The 10-yr is sliding to push the yield to the 3.81% point, but should have some trouble as it heads around 3.82%. 

08:44 am - Bump off Data : The market was holding a bit of a bid ahead of the data, getting an added bump as the reports say falling income -0.7% versus 0.1% for Jun, a downtick on spending to 0.2% from 0.6%.  Income was dragged on by sliding disposable income and the PCE deflator was the highest since 1991 at 4.5% yoy (Bloomberg).  The market may be able to hang its rally on this report, but action remains subdued and with a shortened session into a long weekend, the fun may already be over for the day. The 10-yr ticked better to push the yield through 3.76% and may need a couple more cracks at that point to take shot at the 3.72% level barrier.

08:43 am - Not Ready to Roll : The front month 10-yr futures contract is chipping away at the offers above 117 (spread to Dec -1-05+). A close up here should keep positive momentum on track, but barely and with volume stretched thin it is likely to be discounted. Dips are getting bought near 116-17 while below sees support at 116-08.

08:19 am - Holding Ground : The market continues to fight back from its modest swings lower as trade is reluctant to throw in the towel just yet. Month end flows, Gustov and credit market uncertainty have helped prices absorb record supply and not-so bad data this week. The 2-10-yr yield spread is working steeper at 146.1 but tucked well into its comfort zone. Bond prices in the EuroZone and Japan were well bid off weak data.  Trade in treasuries will stick around just long enough to get a peek at the middling data that hit through the morning. There will be little desire to trade today given the shortened session and long weekend. Those that are at their desks are filling safe-haven orders and short-term swing trades looking to repair/bolster p&ls for month end.  The buck is offered with the euro getting a little but getting some weight as inflation in the region showed a surprising drop-off. On the yen it also slid, trading off to the week's lowest levels on the yen in front of a run of data that is not expected to boost the buck.  Gold has got a minor bid after taking a run at the week's best levels, but is essentially unchanged with spot 834.32 (+0.27).  Crude has regained ground and is heading higher at 117.14 (+1.55).  The market has personal income/spending (8:30), Chicago PMI (9:45-ish) and revisions to UofM (10-ish) due.