Fixed income players are clearly giving more credence to 200 basis points' worth of stimulus from the Fed this year, with a vicious curve steepener gaining pace with the continued recovery of equities on Thursday. Capitulation of prices at the long-end of the curve initially contrasted with gains at the front-end, but the June and cash bond fell over 1-1/2 points by the end of trade and dragged the front-end underwater with them.
The elastic on the 2s/30s spread stretched to +154 basis points from as low as +114 basis points prior to the Fed cut Wednesday, amid rumors of a strategic curve/allocation trade by a real money player and/or hedge fund. 20,000 June bonds were heard dumped over the course of the trading session on their/its behalf by a prominent U.S. house and U.K. bank. There were also rumors of a bank with a mortgage position/hedge gone awry.
The Nasdaq chaulked up a 5% rally thanks to a friendlier earnings environment and Treasury Sec. O'Neill and Fed governor Ferguson talked up economic prospects going forward.
Conference Board's Q1 CEO confidence survey jumped, Philly Fed snapped back and the March Treasury budget gap widened -- more grist for bears.