Wall Street's snap-back rally on Tuesday was de-clawed on Wednesday, helping Treasuries resume their winning ways. The partial sanctioning of war by the House of Representative (Senate awaited) and more equivocal Fedspeak provided a foundation for gains and curve steepening, prodded by elevated risk aversion.
As there was no data to speak of, the focus was magnified on Fedspeak and stock swings. All three speakers were non-voting Fed members, though their opinions helped color the policy debate with dovish brush strokes. None sounded overconfident about the recovery, with Atlanta Fed's Guynn hedging his growth bets with event risk.
Richmond Fed's Broaddus mulled over disinflation and business pessimism. Any dovishness, however, was mostly inferred from their caveats to growth rather than directly from their comments. San Francisco's Fed's Parry warned about uneven growth, the port strike, the threat of war and stock losses, though policy remained accommodative. Bush also announced agreement with the House on the use of force in Iraq, which combined with the damp Fedspeak helped boost the front-end sharply.
The December bond found support below 113-00 and rebounded 7/32 to 113-18. The two-year note and 30-year bond spread steepened back out four basis points to +299 basis points.