A combination of patient Fedspeak, short-covering, quarter-end and shallow markets ahead of the long Easter weekend allowed Treasuries to overcome the bears and dichotomous data Tuesday. From Prague, dovish Dallas Fed's McTeer got the short-squeeze underway by confirming he was not in a rush to raise rates--an impression also later left by optimistic New York's Fed's McDonough. Smaller speculative shorts and hedge funds were then both caught on the hop by strong technical support and softer than expected 1.5% gain in February durable goods orders when adjusted for the downward revision of Jan data from 2.0% to 1.3%.
Weekly retail sales were also soft, though a surge in consumer spirits to 110.2 from 95.0 briefly knocked the wind out of the market. The June bond closed up 24/32 at 98-31/32 and the curve steepened up three basis points to +211 basis points as May Fed funds moved to discount only 55% odds of a hike from over 85%.
Stocks shedding gains and options flows also backed up the rally. Real money and mortgage accounts continued unwinding downside hedges (selling par puts) on June 10-year notes and a global advisor down-played near-term tightening risks.