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Long Bond Outperforms Again

The curve flattened Wednesday, as the front-end and belly of the curve underperformed the Phoenix-like long-end. The 2s/30s spread narrowed from the +150 basis points area to +145 bp, with more corporate supply and the quarterly refunding next week crowding the shorter maturities while the long-end benefitted from Treasury commitment to more bond buybacks.

In fact, a stepped-up buyback of $10 billion was announced for Q2, followed by another $10 billion in Q3, which combined with a $470 million Fed coupon pass in the longer dates tripped buy-stops on the June bond through 101-11 Tuesday highs.

Rumors that a certain Omaha value investor (who hates tech stocks) bought principle strips on the bond and talk that the Bundesbank bought bonds outright goosed prices further before the contract ran out of gas at 101-23.

Stock finished mixed, wincing after a rather damp Fed Beige Book survey of national economic conditions. Fed speakers (Meyer, Parry, McTeer) remained cautiously optimistic about a second half rebound. March factory orders gained 1.8%, while the Chicago Fed's national activity index improved.

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