Greenspan Shocks Bonds Downward

The Fed chairman didn't disappoint in rocking the market this morning. The long bond, which was down all of 1/32 prior to Alan Greenspan's Humphrey-Hawkins testimony, dropped sharply after the release of the testimony on the Web, largely due to one sentence: "The Federal Reserve must continue to evaluate, among other issues, whether the full extent of the policy easings undertaken last fall to address the seizing-up of financial markets remains appropriate as those disturbances abate."

Ouch. The 30-year Treasury fell almost a full point, largely on the back of that statement, and lately was down 31/32 to 97 16/32, as the yield rose to 5.42%. The March long bond contract fell 26/32. Most were expecting a balanced assessment of the economy that might lean slightly to the hawkish side, and with that statement in the testimony, that's an accurate take.

"That's why we're rockin' and a-reelin' in here," said William Sullivan, chief money-market economist at Morgan Stanley Dean Witter. "It connotes the prospects of some upward movement in the funds rate as these 'disturbances abate.' But I think it's been given too much importance in early reaction to his remarks." 'Right now the market is predisposed to see the glass as half-empty today,' said A.G. Edwards' William Hornbarger. 'I really do think the market is getting more skittish; there was no real surprise in what he said.' ...