Lightly Lower: Treasuries limped through the session with little in the way of market moving information and a cautious, corrective trade keeping action in check while the mid-curve sagged. Supply and Fed-speak are holding players back, with many sidelined and keeping out of the lightly traded session. There is a batch of relevant events in the belly of the week with the auctions and the Bernanke testimony on "exit strategies" landing in the middle. The refunding starts tomorrow with the $40B 3-yrs hitting, followed by $25B 10-yrs Wednesday (also Bernanke day) and the $19B 30-yrs go Thursday. The market will likely remain within established ranges through to Tuesday, although they may lose further ground as the market makes room for the instruments coming up on offer through the week, but the ongoing worries over European problems should keep a floor under things. The curve ground its way a touch steeper from early in the session, ticking back to trade 280 on the 2-10-yr yield spread. The dollar slid some with the index holing up near 80.25 while the euro couldn't hold over 1.37 and was knocked back to 1.3670. The yen was listlessly lower on the buck and the euro but fairly flat most of the day. Tomorrow has just the minor wholesale inventories (10), expected to drop. Trade will be watching the 3-yr auction, which will follow the $24B 4-wks, and should go off decently. NY Fed's Dudley will speak late tonight (19) but there should be minimal headlines.

Quiet: The dollar was still offered into the end of the session, but 2-way flows are keeping the index range bound sitting near 80.25 as corrective trade in light action runs through. Trade has been quiet and players biding their time until some of the week's event risks start to push through. The euro failed to hold over the 1.37 handle and has dropped back to hang near 1.3675, holding near the lowest in 8 months on the buck and just barely better on the yen. The yen has been under low level pressure on the buck and has held near 89.35. Euro zone data includes some inflation reports which are expected to remain fairly flat, but any upside surprises will not likely help the currency much, otherwise the data calendars carry minor data. Gold has had its attempt at a comeback thwarted, after some early reaches to better levels with spot 1065.38 (-0.93) while crude was given a weather and weaker dollar bid to settle 71.89 (+0.70).

Long End Buyers: The market is biding its time with the auctions on deck and Bernanke in the hot seat Wednesday. Refunding kicks off tomorrow with $40B 3-yrs, $25B 10-yrs Wednesday and $16B 30-yrs Thursday, with Bernanke hitting in the middle of that muddle. The offerings are at-record size and should fare well enough, with the previous, solid, $40B 3-yr seeing 1.490% with a bid-to-cover ratio of 2.98 and an indirect bidder take of 38%. 

Size Matters: The market continues to loiter lower with the mid-curve dragging while the curve tries to churn steeper. The trade is extremely light and comes on the heels of Friday's comparatively heavy sized volume action. WSJ reports the CME saw over 18.6M in futures and options trade Friday, the most since Sept 18, 2008. The combined interest rate product volume was 8,328,998 contracts total. The Lehman debacle preceded the Sept 18 CME total of 21.4M versus Q409 average daily size of 10.2M. Traders and  brokers are pleased to see this return, even if briefly, of decent flows. (WSJ/FutureSource March 10-yr futures)

Long Strange Trip: Treasuries have slumped into a quiet, dull range with little to motivate action and a number of event-risks on the docket this week including Bernanke's testimony on "exit strategies" Wednesday. This is being seen as the opening (OK, the "official" opening) of the Fed's baby-steps to unwinding accommodation and the assorted remaining bailout measures. They will take their time, though and the market will have ample notice. It's not as if the Fed has not been vocal that the time is coming, but fact is, this is likely to be a long, long strange trip to actual tightening via outright rate hikes. The market has seen some ongoing safety buying, helping to keep things from getting any downside momentum, while the issue of supply on tap keeps prices somewhat pressured. Traders report some fund and bank buying interest on the mid-curve stuff, but overall it is very slow and thin. The curve has been seesawing toward a steeper slant with the 2-10-yr yield spread running 279.6. The dollar has been stalled as well, offered to trade between 80.10 and 20 as the day's word remains "caution" and it may reassert itself late in the session. The euro has been battling to keep itself up over the 1.37 handle and has also slipped into a comatose range. The yen is doing the same, but on the offered side on the buck and the euro sitting near 89.25 and 122.20 respectively.

Slider: The dollar has been backing off with some general squaring following last week's blow-up of the index to its best since July on safety buying. The G7, as per usual, offered little of note, while concerns over infections spreading through the troubled southern nations in EuroLand (with the UK now being added to the list of potential contagions). The index has slid back to 80.10 in quiet and still cautious trade. The euro has been trying to hold through 1.37 decisively, but its been a slippery proposition, while also regain some ground on the yen with unwinding helping push it better. The yen has been fairly flat on the buck, but remains supported by risk concerns but holding near its recent best levels, while sliding to give up near 122.50 pre euro from sub-121 levels. The pound is battling back from its worst since May with the WSJ noting weekend UK polls continue to spook players as they see elections leading to an indecisive, slow moving batch of lawmakers. Gold has spot running 1067.02 (+0.72), able to gain a little as the dollar backs off and correction trade runs through, while crude sees a similar bid also seeing fundamental demand increases now 71.70 (+0.51).

Long Unwinding Road: The market is doing its best to sit in place nicking around quietly while awaiting, or perhaps just resting, ahead of a week with some rocking potential. Outside the auctions, which are expected to go well enough, there will be the opening testimony of Bernanke's long, long, long and unwinding road trying to soothe markets into exiting the many measures that have been keeping things afloat. Tightening, eventually, will be no surprise to anyone, but it may be the Fed's communication of the timeframe that  gooses markets. As WSJ's Hilsenrath notes, the talk of starting with adding to interest paid on excess reserves and roll from there. "When the Fed is ready to tap the brakes, it plans to raise the rate paid on excess reserves, according to Fed officials in interviews and recent speeches. The higher rate would entice banks to tie up money they otherwise might lend to customers or other banks. The Fed expects such a maneuver to pull up other key short-term rates, including the federal-funds rate..." The issue of committing a policy calendar is another problem, as the Fed is "Uncertain about the outlook for the economy and markets, they want to avoid committing to a course they might later find inappropriate. They want to keep open their options: raising rates quickly; keeping them low for a long time; boosting them and then pausing, or some other tack, depending on the economy." (See Jan 29 Rate Brief "Too Legit to Commit") The move out of the piles of MBS they have been taking off the bloodied hands of dealers is likely to remain well out the calendar.

Quiet: The market has been backing off toward the lower levels seen overnight as stocks turn back to aiming for gains. Talk of finding solutions for the bubbling troubles in Europe and containing contagion has led to some relief and unwinding of safety plays, but the key word remains caution. The market may stall out and hang the 10-yr near 3.575% and 3.6% area for a stretch while supply will serve to add pressure.

Rally On: Treasuries finished the week on a high note with the market getting back the past couple weeks in fairly dramatic fashion as stocks crashed, concern over the European situation and general uncertainty in increasingly volatile markets. The day's payrolls report was still given much currency, but the sovereign debt risk issues weighing on the continent continue to suck out riskier business as the flight-to-quality trade rules. The possibility that some jitters will be soothed along with likely corrective action could add drag come Monday (as well as the end of a potentially tumultuous weekend). The week ahead has a light calendar with the bonds big events being the $40B 3-yrs Tuesday, $25B 10-yrs Wednesday and $16B 30-yrs Thursday. There will also be the mid-week circus of Bernanke's testimony on unwinding all the bailout schemes without blowing up the markets. Could be interesting, but the players should choose their words very carefully and Bernanke likely to do some fancy dancing to avoid being painted in to a policy or concrete plan corner. The curve was worked flatter in the late session with the 2-10-yr yield spread running 279.5. The dollar was backed off its best levels late but the index is holding near July levels, the yen near its year's best on the euro which was just whacked down generally, holding near its worst level since May on the buck.