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Treasuries End Mostly Lower

Fed Chairman Greenspan kept a tightening bias at arm's length during his Joint Economic Committee testimony Wednesday, but Treasuries faltered anyway. Greenspan gave a hopeful, but not overly confident, review of the economic outlook and monetary policy.

Stocks were befuddled by the cautious economic outlook, while only short-dated maturities revelled in the patient policy tone. The trade deficit widened to $31.5 billon from $28.2 billon and added to the dollar's woes as it tested 2002 lows on a trade-weighted basis, but neither had much baring on the curve.

The June bond slumped below par, but closed -27/32 at 100-2/32, while the cash bond sank over a point and its yield backed up 8bp to 5.73%. Only two-year notes closed in the green and the two-year note and 30-year bond yield spread accordingly widened 10 basis points to +237 basis points.

Fed funds futures charted a similar steepening course as the tightening cycle receded further over the horizon and odds of a June hike fell to 60% from 85%. The Treasury announced a $25 billon two-year note auction for next week and a $1 billon bond buyback for Thursday, but this supply dynamic has done little so far to twist the curve.

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