Treasuries rounded out the week on solid footing after volatile ride on Friday following the key payrolls report. While September payrolls sank 43,000, the upwards revision in August and still-lower unemployment rate at 5.6% made the report on aggregate less friendly to bonds than rumored. Disappointment lingered on the front-end to the close, though it too was led higher by a strong recovery in the long-end thanks to event risk and weaker stocks.
The resulting curve flattening sent the two-year note and 30-year bond spread five basis points narrower to +292 basis points, while the December bond reversed its one point drop into a 6/32 gain to 113-20 by the close.
"Black box" funds were rumored early sellers across the maturity spectrum on the the better than expected unemployment print, but appeared to reverse course at session lows, adding g-forces to the roller-coaster ride. The December bond topped 114-08 before late profit-taking brought it off highs.
News that President Bush will make a prime time speech on Iraq on Monday also helped sponsor a bid from lows, as did a number of bullish options trades. European and U.S. swap spreads widened on worries in the banking sector of both regions, though short-dated Treasury futures lagged, merely paring losses set after the unemployment data.