Treasury notes were smashed lower on Tuesday as traders absorbed news that a 50 year note could possibly be introduced by the Federal Reserve, and on speculation that the 8 times a year Treasury auctions will be increased to 12, in an effort to increase the exposure of U.S. government debt. Fragile signals that the economy may be bottoming were cause enough to send yields higher as the potential for a move from bonds to stocks over the coming months was digested.

Traders weighed the supply and demand issues after another swath of $35b of 5 year notes hit the floors today. There is more coming to market this week in new notes, and the Treasury is now relentlessly getting these auctions completed before the market runs out of interest in holding/buying/swapping notes. There are so many notes out there, and so many more to come, that the values are now starting to drop heavily, in-line with yields increasing to seven week highs.

The Federal Reserve sold a record number of new issue notes last week, and created another mass of dollar backed Treasuries for the market to absorb at auction this week. That sent the 10 year yield up to touch 3.02%, within just 3 basis points of the yearly high. The Fed continued its short-dollar mandate by buying record numbers of U.S. debt over the last two weeks. A 50 year bond would certainly reduce the stress on this generation’s ability to fund this debt via growth, taxation, and investment.

The Fed plans to buy as much as $300 billion of Treasuries over the next six months in an effort to lower consumer borrowing costs. The benchmark 10-year note has yielded between 2.46 percent and 3.05 percent since March 19th, the day after the Fed’s purchase program was announced, as the buybacks offset concern that government debt sales are setting records.

Crude oil for May delivery held major support at $48.50, but still closed lower by 1.68% on the day, with a $0.82 loss. Futures trade held a very tight range on Tuesday, locked in by the 20 day SMA at $50.50.
Gold for April delivery closed lower by $13.90 at $895 per ounce, in a test of major support areas at $888, the 20 day SMA area. Gold prices were the lowest in three weeks after the move away from the asset class in reaction to fears that the global recovery may be impeded by earnings and possibly sold in the face of a flu epidemic that has gripped media and market attention.