u.s. bond report

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    Debt futures traded lower for most of the session Thursday in the wake of a big drop in continuing jobless claims and heavy corporate and agency supply, analysts said.

    The market had initially tried to go higher, which was linked to overnight weakness in equities. However, the bonds and 10-year notes stalled in the area around their 20-day moving averages, analysts said.

    The futures did get a little bounce off their weakest levels of the day on some short covering ahead of the close.

    Dec 10-year notes settled down 7 ticks at 112-02, Dec Treasury bonds lost 15 ticks to 108 even. The Dec 5-year note slipped 4.5 ticks to 111-23.5, and the Dec 2-year note inched down 1.2 ticks to 107-05.7.

    Fed Fund futures settled with slight gains almost across the board, while the Dec 10-year municipal note index lost 7 ticks to 100-20.

    The Dec 10-year agency contract finished off 13 ticks at 107-20, with the Dec 10-year interest rate swap finishing at 109-09, down 11 ticks.

    The market had a firmer tone at the beginning of open-outcry trading, which analysts at the time linked to the very early weakness in stock-index futures. The market later turned negative, however, as stocks bounced off their lows, traders digested the jobless claims and heavy supply.

    "We sold off all day long," said Roseanne Briggen, senior market analyst with MCM. "This morning, it was the data."

    First-time weekly jobless claims fell 4,000 to 386,000 last week, the Labor Department reported this morning. That was in line with various consensus expectations were for around 385,000 to 390,000 claims.

    However, economists said this morning, an 84,000 decline in continuing claims left traders thinking the economy is still improving, or at least is not as weak as some may have feared.

    Briggen also tied the day's losses to a heavy slate of corporate and agency debt being issued this week.

    "There was a ton of it this week," she said. "If you added it up, you've got $20 billion between corporates and agencies. It finally weighed on the market."

    By the time the interest-rate pits closed, the Dec bonds had bounced roughly a half point off their session lows.

    "It was probably a little short covering going into the close by specs who had been short earlier," said Briggen.

    John Kosar, senior research analyst at Bianco Research LLC, pointed out that as Dec Treasury bonds and 10-year notes initially rose, they stalled near resistance at their 20-day moving averages.

    Dec bonds peaked in open-outcry trading Wednesday at 108-24 and this morning at 109 even. Their 20-day average is 108-24.

    "Obviously, that is a level, at least near term, that the market recognizes as being important," he said. "I would say anywhere from 108-24 to 109 is an area I would need to see to say 'OK, the market was indeed right, bonds are going higher near term.'"

    Kosar put support in the area around 107-12; the market bottomed today at 107-16.

    Dec 10-year notes peaked in open-outcry trading Wednesday at 112-14.5 and this morning at 112-24.5. Their 20-day average passes through 112-16. Kosar put support around 111-20; the market bottomed at 111-26.

    When open-interest data is released Friday, this may offer an important clue as to what is happening in the bond futures, Kosar related. It will show whether there is conviction among the traders who had been going long prior to today's sell-off, he explained.

    When the market was rallying in September and again recently, higher prices were generally accompanied by expanding open interest. This, said Kosar, showed that the longs had conviction, since they were willing to hold their positions overnight.

    For instance, he pointed out that open interest rose in bonds by more than 16,000 contracts Wednesday as bonds were gaining more than a full point.

    "What today's collapse means is that all 16,000 and change who bought and held positions overnight are losing money to various degrees," said Kosar. "Some are out seven or eight ticks, some are out over a full point."

    That, continued Kosar, "sets up an interesting scenario" for Friday, when Thursday's open-interest figures are released. People will be looking at those numbers to see whether longs are hanging onto their convictions and thus their long positions.

    "If not, we are going to see open interest drop hard," he said. "If it does, I would be inclined to think maybe this little rally is over and the bond market uncharacteristically got caught the wrong way and maybe we're going lower.

    "But if open interest stays relatively flat to higher, to me it shows that the bond market is convinced we're going higher near term and are digging their heels in or even buying more."

    No major economic releases are on the calendar for Friday
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