A combination of supply, curve unwinds, convexity demand and short-covering in front of payrolls boosted the long-end sharply Wednesday. France Telecom set an early positive tone for the market with rate locks sprung on $9 billion worth of U.S. paper. The market took down the record supply readily and this seemed to offset any worries that Treasuries would be "crowded out," though there's another $10 billion in 2s and 5s to go from Freddie Mac on Thursday.
An 18.8% jump in the MBA refinancing index and an MSDW reported mortgage prepayment surge underlined the need for MBS players to hedge their shrinking portfolios with intermediate maturity notes as well.
Stocks held their own for much of the day, though an after-hours announcement pending from web portal Yahoo cast a cloud over tech shares.
A "sluggish to modest" Fed Beige Book report left easing hopes intact, and helped the June bond close +26/32 at 105-14, while the cash bond closed nearly a point higher.
The weak yen reflected some Asian flight into bonds. Fed's McTeer and Poole downplayed recession. Greenspan encouraged once-lax lenders to open their wallets.