So... will the news leading up to the FOMC be all about the hedge fund collapses that were floating around all day today? More temper tantrums to get another cut?
from
www.bloomberg.com
U.S. Treasury Notes Advance as Drop in Stocks Increases Demand
By Sandra Hernandez and Deborah Finestone
Jan. 25 (Bloomberg) -- Treasury notes gained, heading for their sixth straight weekly advance, as declining stocks fueled concern that the U.S. economy will fall into recession.
Traders drove two-year note yields 1.39 percentage points below those on 10-year notes, close to the biggest gap since 2004, on speculation the Federal Reserve will cut interest rates by as much as a half-percentage point on Jan. 30. Volatility in Treasuries reached the highest in a decade this week as policy makers cut their target in an emergency move, while stocks posted the longest slide since 2002.
``Yields at these levels reflect safe-haven flows,'' said Jane Caron, chief economic strategist in Burlington, Vermont, at Dwight Asset Management Co., which oversees $68 billion of fixed-income assets. ``Treasuries are being used as a parking place for cash worldwide until there's a better sense of global financial-market direction.''
The two-year note yield fell 13 basis points, or 0.13 percentage point, to 2.19 percent as of 2:16 p.m. in New York, according to bond broker Cantor Fitzgerald LP. The 3 1/4 percent note due December 2009 rose 1/4, or $2.50 per $1,000 face value, to 101 31/32. The yield is down 16 basis points this week, and has dropped about 1.1 percentage point since mid-December.
The 10-year note yield dropped 12 basis points today to 3.59 percent. The yield touched 3.29 percent this week, the lowest since June 2003, as investors sought shelter from falling stocks. Five- and 10-year yields have also fallen for six weeks.
Treasury Volatility
Ten-year TIPS yielded 2.22 percentage points less than similar-maturity notes, down 7 basis points from yesterday. The difference, or breakeven rate, indicates the rate of inflation investors expect over the next decade.
Merrill Lynch & Co.'s MOVE index, which measures volatility on Treasury options, climbed to 171.7 yesterday. That's the highest since October 1998, when the Fed cut interest rates between meetings, responding to financial-market turmoil after the collapse of hedge fund Long-Term Capital Management LP.
In another sign of how turbulent trading has been this week, the five-day historical yield volatility on the 3 5/8 percent coupon Treasury maturing in December 2012 reached 132.7 yesterday, up from 30.4 on Jan. 10.
``I don't remember triple-digit volatility,'' said Cerra of TIAA-CREF. ``It's really beyond my 23 years of experience.''
Have a great weekend everyone!!

