Treasuries are in silly territory here after another massive risk off trade overnight. The NFP report is minutes away, but everyone is watching for the chance of the Fed fearful of something in this number. That is only heightened by the following bullard comments from 7:30 AM ET on Bloomberg:
*BULLARD: DON’T WANT PEOPLE TO FOCUS SO HEAVILY ON MARCH MEETING
*BULLARD: FED HAS FLEXIBILITY, HAS SHOWN IT CAN ACT INTERMEETING.

As of 8:15 AM ET, Treasuries are 14-17 bps lower in yield in a small flattener out to 10y sector, while 30y yield is down 25 bps in its own universe (see below). Meanwhile, equity index futures are trading down almost 3% ahead of the NFP number and the cash open.

Couple things to know before the number:

*When you rally 20 bps overnight in Treasuries at these levels, your suspicion that liquidity is now zero is correct.

*There is still an underlying bid to long end after the story yesterday morning that GPIF (largest pension plan in Japan) was going to increase foreign bond holdings (read Ts) in next fiscal year (April 1); Nomura believes they will 10% to foreign bond total (from current 15%) and all unhedged.

*Last night’s catalyst was a NYT report that almost 3000 New York residents were self-quarantined as of yesterday. It was risk off overnight the second that story hit.

*We traded our lows mid-morning in core bond space, with large selling of Italy, Greece, Spain, and Dutch paper supporting gilts while credit spreads gapped wider again and fixed income gapped higher.

That will do it for now. Really worried about Bullard’s thinly-veiled message this AM, even more worried that the Fed is more scared than the public, which I didn’t think was possible. Don’t know what they see or what they are watching for in the number today (it’s not the headline!!!), but they are clearly in play at 9 AM ET depending on the number, and every day after this if they do nothing today.

Let’s see how this goes. It will not go smoothly though. Not sure what the Fed is watching, but it isn’t the headline number. Don’t get caught straying too far off the desk this morning as Bullard tells us we are now live from here through March 18. Forget today’s ranges, just understand that 2s are going to 0 (45.5 bps here), 10s are going to 20 bps (70 bps here) and 30s are going to ????. You tell me.

Good luck out there today…it’s going to be one of those days,
mjc