Abdullah Karatash

Stocks sold off with the S&P index -1.9% lower as Treasury bonds rallied in a classic flight to quality.

Oil closed a couple of dollars off its recent highs but the market shifted attention to initial jobless claims numbers that came out worse than expected.

The European peripheral story seems to be in vogue again as rating agency Moody's cut Spain's sovereign credit rating; the U.S. dollar rallied to close at 1.38 against the Euro.

Corporate credit spreads, while a few basis points wider, still feel surprisingly resilient considering all the broad worries dogging the market from inflation to geopolitical tensions to the European sovereign story.

The 30 year Treasury auction was held today and treasuries continue to get bid up aggressively even as large funds from PIMCO to several hedge funds have turned bearish on Treasury bonds.

The unspoken rumor is that the government continues to buy Treasury bonds, either directly or indirectly through its primary dealers; at a point, this bid-side support will inevitably halt.

Medical equipment maker Medtronic hit the market with a $1 billion bond issue: $500 million of 5 year debt at +65 and $500 million of 10 year debt at +80.

Other planned issues were put on hold and took a back seat to market volatility.

Advance Retail Sales and University of Michigan consumer confidence numbers are out tomorrow.