The Treasury long bond posted a surprising 27/32 price gain Monday, ignoring above-consensus data and a solid rally in stocks. However, trading was very light thanks to the holiday-disrupted week, and hence traders saw no real significance in the move.
Bonds were on better footing from the open as bottom-fishing helped Treasuries correct higher from their late-June plunge. Continuation of the curve flattening trades also helped give bonds a lift. Though prices knee-jerked slightly lower after a stronger-than-projected NAPM report (which followed healthy gains in PCE and construction spending), the market quickly recovered as such data had been presaged by regional reports. With little interest to sell the market at current levels, prices continued to edge higher, even in spite of a triple digit rally in the Dow.
Shorts were forced to cover, and stops were triggered which extended the gains. The front-end also traded in positive territory through the day, with the 2-year rebounding from an oversold status. The 5-year note ended up outperforming along the curve, helped by a repo squeeze.