The second consecutive strong rally by stocks to finish the shortened week on Friday killed off the bond after stopping it cold in its tracks Thursday. The damage was all the more real after the softer data was treated more as a contrarian indicator by Wall Street.
Retail sales fell a larger than anticipated 1.2%, but the direction was well flagged and it was close enough to median forecasts to be shrugged off. Tame PPI rose 0.1% for both headline and core, but U. Michigan consumer sentiment collapsed to 80.4 from 86.1, with comparable declines in current conditions and expectations sub-components. After only a momentary flutter, stocks resumed their ascent and extended gains 4-5%, in line with similar back-to-back gains in Europe.
After a brief pop higher on the U. Michigan data, it was all downhill. Indeed, there was a bearish buyer of 8,000 puts on Nov 10-years before the data, and though a Midwest bank later bought 10,000 114 March bond calls, the damage was already done on the downside.
The December bond closed down 1-14/32 at 112-11, while the two-year note and 30-year spread steepened ever so slightly back above +300 basis points.
The dollar firmed initially in stocks slipstream, but closed in the middle of its range.