Treasuries clawed back nearly half of Monday's steep losses on Tuesday, helped by the after-hours warning by tech-equipment giant Cisco, which kept equities off-balance all day and re-introduced concerns about the virtual economic recovery.
Data played a bit part and the June bond dusted itself off from 101-12 lows to close up 22/32 at 101-28, while the curve steepened slightly in the process. Core CPI came in at a tame 0.2%, housing starts sank to 1.61 million units and capacity utilization steadied at 79.4%, though there was a surprise uptick in IP data to 0.4%. Flows were not particularly dramatic, though there was a bit of bear call spread selling on 10s and dealer buying helped lift the long end in the latter half of the session.
Non-governmental dealings remained light, but Japanese insurer Takefuji, Sallie Mae and Morgan Stanley Dean Witter queued up $5 billion in paper between them. The Fed engineered a $949 million coupon pass at the front-end, while the Treasury announced a $39 billion CMB sale for Wednesday. NYMEX crude finished the day lower ahead of Tuesday night's expected API stock build, while the dollar finished mixed.