A surge in initial jobless claims data helped Treasury futures extend their rally for a fifth straight day. However, position squaring into Friday's employment report left the cash market little changed to slightly lower by the close.
The 64,000 surge in jobless claims to a whopping 460,000 level surprised an already bullish market. A size buyer of two-year notes was reported on the figure, along with hedge funds and retail accounts. One shop was also a note seller of a 5-10-30 butterfly, selling June 10-year contracts for June five-year and 30-year bonds.
There was also decent buying in Fed funds futures, which priced in less risk for an imminent rate hike; indeed the May contract showed only about 35% risk versus 45% Wednesday. However, news that the data were impacted by the government's extension of benefits, President Bush's re-engagement in the Middle East situation, technicals, and position squaring into Friday's payroll data eroded the gains through the afternoon.
Though the futures closed out in positive territory with the June bond +5/32 at 99-30, the cash market retreated into the red as longs bailed out.