It was the best of times and the worst of times, at least for bonds and stocks, respectively, on Friday. Treasuries rounded out the week as the dominant partner of the two asset classes, with the curve sharply steeper and stocks banished to the bottom drawer. Longer-dated issues outperformed amid very thin flows.
The major equity indexes shed 3-5%, which marked a fresh cycle low since for all three indexes their fall from grace in March of 2000. CPI came in with a muted 0.1% core headline and core gain, while the trade gap blew out to a record $37.6 billion thanks in part to importer hoarding ahead of the potential longshoreman strike on the West Coast.
A number of economists accordingly marked down their estimates for Q2 GDP growth to the bottom of a 2-3% range, though this may mark the peak in the deficit near-term. The September bond closed up 19/32 at 105-06, while the curve steepened four basis points to +294 basis points before reversing back to +290 basis points after stalling ahead of the key +300 basis points psychological area.
There was some talk about foreign central bank two-way activity at the front-end, which was followed by an unusual "bill pass" by the Fed. The dollar index vacillated around 104 on a trade-weighted basis.