Treasuries traded places with stocks Wednesday, as a bout of profit taking set in on bonds. Supply, stocks, technicals and comments from former policy heavyweights accounted for the more leaden tone, while the small decline in June existing home sales was largely shrugged off.
About $12 billion in 2-year notes were uncomfortably digested, though in line with expectations, given the surge in corporate issuance (QWest, Reed Elsevier, TVA, etc). The September bond opened well off its 103-23 previous close (and 3-month high) and never recovered, finishing down 23/32 at session lows of 102-29/28. The 2s/30s spread steepened ever so slightly back up through +160 basis points, but was mostly rangebound.
The dead cat bounce on stocks and anxious comments from former Treasury Secretary Rubin and Fed Chairman Volcker on the budget surplus and current account deficit may have also sparked some asset allocation shifts.
A trio of U.S. shops were buyers of the September bond on the way down, rumored on behalf of a hedge fund, but such demand was readily soaked up. Employment cost index data and durables data are looming Thursday and Q2 GDP is due Friday, which is likely to sap some strength as well.