With over a week for the markets to digest the surprise Fed cut, Thursday showed signs that the luster is wearing off. The curve flattened, with the 2s/30s spread narrowing to +157 basis points from over +160 basis points.
Thursday's data pair also helped the long-end recover, as did the $2 billion bond buyback and residual distribution of Wednesday's 2-year note auction. Initial claims at 408,000 cleared the 400,000 barrier, the highest since the March 1996 auto strikes, though from a much lower base of unemployment than in 1996 or the 1991 recession.
Though firm, at 1.1% quarter over quarter and 4.1% Q1, ECI was right in line with expectations. In addition to one dealer recommending fading curve steepening, unwinding of steepeners and rumors of a West Coast fund buying long-dated principle strips in size and the squeeze on 10s kept a fire under the long end.
The June bond closed up nearly a point at 101-17, clearing 101-00 stops after shucking and jiving down at 101-18 after the data. Fed speakers were abundant, but San Francisco's Fed's Parry was less sanguine that the jump in long yields was a sign of recovery. Pacey non-government issuance was mostly absorbed.