The flavor in NY trading was decidedly risk off. The US dollar continued to benefit from the flight to safety and poor economic data coupled with a very healthy 2-year Treasury auction helped to support the buck's gains. US consumer confidence fell off the face of the earth in February to print a measly 46.0 after a 56.5 read the prior month. The market was looking for a solid 55.0 read, so the surprise was palpable indeed. The internals of the report were also ominous as both the expectations and current situation components declined - not good news for consumer spending going forward. If that wasn't bad enough, the labor differential (jobs plentiful minus jobs hard to get) dipped to -44.1 from -42.1 and suggests that the improvement we saw in the US unemployment rate to 9.7% in January could have been a statistical anomaly. In other words, the potential for a grind back to a double-digit jobless rate should not be discounted.

In terms of the 2-year Treasury auction, it was decidedly an A+ by all accounts. The bid/cover ratio came in at a stellar 3.33 while indirect bidders (proxy for foreign central bank demand) took nearly 54% of the offering. Moreover, the interest rate came in slightly below where the market was trading at the time - suggesting investors were willing to take a haircut on returns in order to make sure they got their share of the pie. The 5- and 7-year auctions will provide more color in terms of the appetite for USD-denominated assets later this week and should they come anywhere close to as strong as today's 2-year, expect this to prove only be the beginning in what is likely to be a prolonged US dollar rally.