New day, same story but maybe with a  twist.  Equity markets, both across the pond and stateside rallied this morning on news that ECB President Trichet caught an earlier flight out of Aussie land and headed home, presumable to figure out what to do with the PIGS (Portugal, Ireland, Greece, and Spain).  All rumor at this point but maybe a bailout is in the works.  Wonder who will pay for that.

Bonds, notes, and mortgage backs were under pressure early but only by a couple of 32’s while stocks jumped 150 on the big board.  Since the open, stocks have given up nearly half their gains and mortgage backs are unchanged while the 10 year note is up 1/32^nd trading at 3.59%.  Trading fixed income of late is “cat” like, requiring one to be quick at the switch.  Reason is that being risk adverse is a headline by headline event.  With little insight on the risk markets other than to expect just about anything, traders must balance auction supply and the White House with “Who Dat” across the pond.

Lucky for us, DC is closed for another day.  Earlier today, the NFIB Small Business Index improved 1.3 points as many plan to increase employment.  Trouble is expectations for the economy to improve fell a point.  Wholesale inventories were also released, down .8% with Sales up .8%.  Durable Goods did the damage, down 1.1%.  It appears that inventory rebuilds may have misjudged draw downs, something we talked about as a concern going forward.  Out in about an hour, we’ll see who shows up to buy 40 billion of 3 year notes.  This auction should go well.

Tomorrows 10 year and Thursday’s 30 year bond auctions will tell the tale of the tape.  Technically, the market is trading within the range formed since last Friday.  We see the action as neutral but cautious.