Favorable tech earnings reports from TI, Novellus and Motorola Tuesday set the stage early for bullish tone on stocks and bearish session on Treasuries. This dynamic encouraged profit-taking on curve flatteners and hence underperformance at the front-end.
The majority of data was friendly to the fixed income markets, but was overshadowed by the short-covering on Wall Street ahead of tomorrow's JEC testimony by Greenspan. Core CPI was a scant 0.1% higher in March and housing starts tumbled 7.8% thanks to a reversal of weather-related gains in the Fall contrasting strong Spring seasonal factors. This reduced the positive impact of the housing report and a solid consecutive gain in industrial production and capacity use data made it a wash.
Stocks surged 2-3.5% and the June bond stumbled hard to 100-07 support before rebounding on patient Fedspeak to close down just 13/32 at 100-29, while the 2s/30s spread narrowed 3bp to +227bp. Minneapolis Fed's Stern gave a candid interview on CNBC, with the usually hawkish voter sounding surprisingly patient, prompting late short-covering across the curve.