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Treasuries Gain as Stock Sink

Treasuries gained across the curve Monday as stocks faltered. Though the short-end continued its outperformance, the long bond surprised with a one-point gain on the day. Indeed, bond prices rose despite more talk of steepening trades, both in 2s against 30s, and in 10s against 30s.

Equities were weak from the get-go, which gave Treasuries their direction for the day. Traders reported allocation shifts out of stocks and into the safety of Treasuries, with all issues across the curve benefitting. While the 30-year successfully swam upstream against the steepening tide, a number of factors added to the short end's luster.

The 5% drop in the NASDAQ increased the odds of another aggressive Fed easing move, and Fed funds futures continued to price in increased risk for a 50 basis point cut in May. A Fed coupon pass also supported shorter dated Treasuries as the Fed bought over $1.4 billion in old 2-year notes.

Unsettled conditions in Latin America, and particularly Argentina also added to the steepening trade. There was no data, but the market also anticipates soft consumer confidence data Tuesday.

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