Long End Run: Treasuries saw added gains as Bernanke and Volcker answered congressional questions while the market wallowed in very thin trade. The 10-yrs got hung up for a bit near the 3.635% point before making a push back to 3.63%, as the long end continues to lead, with the curve action while funds were reportedly doing some short coverage in the longer end. The shorter maturities were dragging and feeling some pressure as the market looks out to supply that starts hitting Tues, with the, likely at-record size auctions announced Thurs. The market is looking for another $44 bln 2-yrs, $42 bln 5-yrs, and $32 bln 7-yrs to be offered up (thank goodness Bernanke stated clearly that everyone, but everyone, would keep right on buying bonds regardless where the yield sits or duration). Options players saw a steady fall in implied volatilities across the curve from Tues as the FOMC got over and done with (PIMCO has reportedly been short forever). The curve was bent back to the flattest levels since the start of the year with the 2-10-yr yield spread ticking to 271. The dollar got a late session bump from early Feb lows with the index moving from 79.50/51 to tap 79.75 while the euro was sent back off to tick around the 1.3740 area, while being pressed lower on the yen to get less than 124. The yen stalled out better near the 90.25 point on the buck. The market will see CPI, initial jobless claims, and current account (8:30), leading indicators and Philly Fed (10). Fedspeak has gov Duke (7:30) and KC's Hoenig, Richmond's Lacker and CLE's Pianalto at an an association "summit"(9).

Bounce: The buck has gotten a solid bounce off the early Feb lows as short coverage pushes through and the euro grinds back off to the 1.3750 area. Trade was getting tweaked early on every Greek related headline while the late action squared into the close. Meanwhile, Bernanke was testifying and saying that rates had been too low for too long and acknowledged the Fed has stumbled. The euro was unable to take out the 1.3780 point, sliding back to 1.3750 while backing off on the yen after running near the best levels since late Feb, ticking through to get under 124 per. The yen is heading back to its best on the week against the buck, pushing toward 90 with an eye 89.92. Gold has been on offer much of the day with spot 1122.25 (-5.45) while crude was held better to settle 82.93 (+1.23), as commodities rallied in general with the CRB index at its highest in a week. (Chart art Jim Schroeder)

Issues: SLM Corp launched $1.5 bln 10-yrs

International Lease Finance Corp selling $1 bln 5.5-yrs, $500 mln 7-yrs

Rockies Expess launched $450 mln 5-yrs (est (+155) and $750 mln 10-yrs (est +200), and $500 mln 30-yrs (est +232) - Reuters/IFR

WSJ : The Fixed Income Clearing Corp. has launched a new data series on daily settlement failures for U.S. Treasury securities in the repurchase market, a step made to boost transparency in this key short-term funding market. The data are published daily and include a broader set of participants, according to a press release from the Treasury Market Practices Group, the private sector group that is spearheading changes in the repo market under the auspices of the New York Federal Reserve. The New York Fed publishes failure data for the repo market on a weekly basis for the primary-dealer community only. That comprises the 18 banks that deal directly with the Fed and underwrite Treasury auctions. Failure to return Treasurys borrowed in the repo market spiked during the credit crunch as investors were desperate to get their hands on the safest securities. According to New York Fed data, settlement failures surged to more than $2.7 trillion in October 2008.

Slow Trade: The market has been slouching around back near unchanged with the long end leading as the inflation issue carries little currency and the FOMC remains on hold. Trade has been very slow since the data (duh) and moves have been more of a drift than a trend. The market ought to have little response to Bernanke's testimony (pre-released) as it revolves around roles and regulations and not policy. Policy issues, however, could very well crop up in the questioning, but there's little likelihood he will slip up and go off message. Heck, he may even crow a bit on the low inflation numbers (while assuring there is no deflation in sight either, so there). The dollar is making some short covering moves off the lows, having taken out mid-Feb levels with the index bouncing off the 79.51 area.

Quietly Backed Off: Treasuries are clinging to gains, ticking around unchanged on the 10-yr which is trying to claw its way back to the 3.635% area, but with little behind the latest leg. The shorter maturities are dragging with the upcoming run of issuance to be announced tomorrow, likely at-record size in the 2-5-and-7-yrs, and auctioned next week. With the FOMC out of the way and the majority of the big event risks also off the table the market has limited downside. Trade should see some corrective action ahead of Bernanke testimony (14) and tomorrow's jobless claims (which are expected to improve even if continuing claims don't), while CPI will likely carry little sting. The curve was flattened off to late Jan levels with the 2-10-yr yield spread 273. The dollar has had its rally pulled out from under it with the index backed off to 79.60, a good 1.6% a week ago, as the market cleans-up some. The euro has been swung back to the plus side, barely, likely to run into trouble near 1.3780, and certainly near 1.38, as it shakes off some of the Greek concerns while also getting a solid bounce against the yen, getting 124.25 from a tick through the 124 handle. The yen has been giving back some ground after ticking to near the best levels on the week, but heading back toward 90.50.

Goodies: CME Group, the world's leading and most diverse derivatives marketplace, today announced the launch of options on Long-Term U.S. Treasury Bond ("Ultra T-Bond") futures beginning June 7, 2010. Both standard and flexible options on Ultra T-Bond futures will be available. This contract will be listed with, and subject to, the rules and regulations of the CBOT. (CME 60 min June Ultra chart)

Bid?: The dollar had a fire lit under it, sort of, with the index popping to 79.825 from 79.72 as the euro failed to hold through 1.38 yet again. The euro saw some clean-up into the region's late session, sliding to 1.3725 on the buck while dipping to get just 124.20 yen per from 125 plus (hitting the worst on the Swiss since Oct 08). The trade is corrective, with little to add to moves at this point aside from basic, technical trade but the market is taunting Swiss officials. The yen has been edging away from the 90.50 anchor but will have issues getting through ht e 90 handle on the buck. The market will be looking for easy options as the majority of the week's event risk has been shed. Gold has been losing its luster, falling off the off the best levels in a week as squaring pulls through with spot 1124.05 (-3.65) while crude has also been drilled off its recent highs, trading 82.18 (+0.48).

Issues: US Steel selling $600 mln 10-yrs - Reuters

Hold: The market is doing little with prices trapped on the heels of the do-nothing FOMC and ahead of Bernanke. The market had been prepared for a drop in PPI, but was somewhat surprised by the extent. But, as consensus expectations anticipated, "Inflation worries continue to get expunged with every data release as the movement in prices has been almost completely restricted to the energy sector."

Holding: The market has been running higher with the longer end leading and helping to take the curve flatter. The curve may be the dominant trade on the day (not that it isn't usually) as the push to a flatter stance is the overriding sentiment as the long issues ride the low inflation report. The CPI hits tomorrow and is also supposed to be on the low end, which will aid trade. On the other side, Thurs' announcement of the likely at-record levels of supply in the 2-5-and-7-yrs to go off next week should keep a lid on things as they add to an already crowded bond calendar.

Agencies: FHLB to sell $3 bln 2-yr globals tomorrow

Minor Bid: The market was able to rally hard on the PPI drop, with the 10-yr running up to tag the 3.626% yield, taking out stops as it cut through the 3.634% area and then flipping back. The PPI number, falling deeper than expected, was inline on the core report, so the initial response was limited. The market will be watching for the curve to make a break flatter with the 2-10-yr yield spread getting back to levels last seen at the start of the year, but likely to have trouble getting through around 271. The pop on the data was brief and the 10-yr will not be able to get much beyond the 3.66% and 3.635% range ahead of the Fed head Bernanke testimony. Trade is still hampered by the world-series level of supply on tap and will need further headlines to edge the market out form that crowd. The curve has been sliding flatter with the 2-10-yr yield spread running through the 272 point. The dollar has been climbing back from pressure that sent the index back to 79.52 for the first time since the start of Feb, after the euro failed, yet again, to aggressively take out the 1.38 handle. The yen continues to tick around the 90.50 level while the BOJ news was adding to their accommodative plays, but kept the move limited, extending an easy loan facility, but not to the extent many had expected. Coming on the heels of the FOMC non-event, the market is set for another extended run of riskier business. Trade will stay tethered to tight ranges as the market sits it out until Fed-head Bernanke and ex-Fed-head Volcker hit the podiums.

Table of overnight activity in the financial markets.

Rally On: Treasuries had a solid up-day as the market basically got what it wanted out of the FOMC, with the language barely tweaked (beyond what were already known knowns) while the lone dissenter on the "extended period" language continued to ride alone. There was no chance that KC's Hoenig was going to back away from his minor dissention but there was a possibility he would be joined in some manner by STL's Bullard. The 10-yr was able to push back to the best levels since the "impressive" -36K payrolls number and equally "good" 9.7% unemployment rate hit back on Mar 5, running to push the yield off to 3.644% from the early 3.712% yield. The 2-yr was finally goosed out of its coma to make a move to 0.891% from 0.940% while the curve went careening steeper as the as they played catch-up. The market will now look to establish a new range with some anticipation of the upcoming inflation data to stay tame adding to the upside, but the 10-yr may not get much beyond the 3.635% without an even lower than anticipated PPI tomorrow. The curve was whipped around, taking the 2-10-yr yield spread flung between 273 and 276.5 and back in a matter of minutes. The dollar got pushed off as the low-rates-for-long-time mantra continues (for an "extended period") with the index swung off to 79.66 the lowest in a month while the euro took another crack at the 1.38 level and failed, again. The yen was ground better on the buck late while sliding on the euro, but remaining fairly rangy in both cases. The day ahead has the PPI report while the Fed start hitting mouths blazing, but conveniently near or after the close, with Bernanke (and ex Head Volcker) testify at the House (14) and Dallas' florid Fisher on a panel (16:30).

The 10-year Note has swung into negative territory ahead of the FOMC meeting where rates are expected to remain low for "an extended period." Equities are now in positive territory after spending most of the morning in the red. The dollar has turned lower vs the euro. The yen was flat vs the dollar ahead of a two-day Bank of Japan meeting where more easing measures are likely to be announced. The Australian dollar was flat after minute from the Reserve Bank of Australia's latest policy meeting revealed it expected to keep rising rates towards normal levels, according to Reuters. Housing Starts for February are due at 08:30 AM EST; consensus calls for 570K. The FOMC decision is due at 14:15; consensus calls for 0.25%.  There are no auctions scheduled. The 2-10-yr yield spread is 276, unchanged from yesterday afternoon's level.