Bond prices rose on Tuesday as stocks plunged. By the close, the Dow was down 277 (2.17%) and the S&P Financial Index, lead by its biggest weighting Citigroup, fell 3.74%. It was clearly a bad day for stocks and especially financials as the subprime and related hits kept coming and the need to raise capital continued. Companies across a broad spectrum of industries are having earnings issues. Intel disappointed with its earnings news on Tuesday. Yields fell 7-9bp across the curve. The two-year Treasury fell below 2.50% for the first time since 2004 and the ten-year Treasury hit its lowest yield since 2003. It is very notable that the long-end of the curve continues to do so well despite expectations of further Fed easing and lingering inflationary concerns. The performance of the long-end of the curve is a testimony to the depth and breadth of the economic concerns. This morning, bond prices are a touch higher in early trading. December CPI came in a touch higher than expected but the core CPI was as-expected, rising 0.2% for the month and 2.4% year-over-year. The stock market is expected to open lower again.

FNMA 5.5% February Coupon

Currently DOWN 2/32'S

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