The sorry state of affairs in Japan drew some attention away from the slowdown stateside Thursday, helping to inject a "safety" bid into the long-end as the rest of the curve absorbed agency supply. Tacit approval of a weaker yen Wednesday and Fin Min Miyazawa comments overnight that Japan's fiscal house was near a "state of collapse" fueled Japan investor demand for T-notes and bonds, unusual during New York morning hours, which lagged a chunky dollar bid to 20-month highs in Tokyo to Y120.40. Freddie Mac sold $10 billion in 2s and 5s, generating interest from Asian accounts, while a hedge fund bid 2s/5s with borrowed yen.
Despite the solid bid, the June bond didn't quite have the legs to get to the 106-handle, with payrolls Friday encouraging profit-taking into the close given risk that expectations are too low for the data.
Stocks diverged after Yahoo! confirmed the deteriorating macroeconomic picture and soft ad revenues sent its CEO into retirement; chalk one up for the old economy (Dow +1.1%) and against the new (NASDAQ -2.5%).
Fed's McDonough and Moskow said little to alter expectations of a 50 basis-point cut on March 20.