Flows, flows, flows. With the Treasury's quarterly refunding out of the way, attention turned to a wave of leveraged and real money flows to round out the week with some curve flattening Friday.
The March bond enjoyed a one-way trip two-thirds of a point higher unburdened by supply, building on gains after bouncing from a 103-22 50% retrace area Thursday to hit 105-03 today. It was well bid overnight by Asian accounts after the Bank of Japan's virtual policy ease and dollar-yen gains. Early U.S. protagonists on the buy side were rumored to be a New York-based hedge fund -- which wound up a 2-day buying spree -- and a Swiss bank buyer of March 106 calls. This nursed the bond back to 104-24, before it eased, only to be bid back up again into the close by a German bank rumored acting on behalf of a West Coast fund.
After the $5 billion Freddie Mac 3-year Internet note was gobbled up, hedge locks were unwound and NASDAQ sank 3.5%. This lifted the middle of the curve and helped drive bonds to session highs. A Fed coupon pass at the long-end added $495 million permanent reserves. Looking ahead, Greenspan's Senate testimony Tuesday may temper bulls.