Treasuries consolidated early stock-led gains Wednesday, though stocks trimmed their worst losses and mostly recovered by session end. Likewise, data was a mixed bag, though bonds overcame the more unfriendly releases.
The curve steepened marginally as event/terror risk kept a premium in the front-end along with the approach of the ECB decision tomorrow and payrolls on Friday. Though traders contacted are becoming somewhat immune to terrorist threat, there was some talk circulating of another explosion in Kenya which may have sparked some short covering.
Stocks were initially weighed by slack guidance from Hewlett-Packard, Disney and lingering AOL Time Warner worries, which also burdened Asian indexes. U.S. non-farm productivity was revised up to 5.1% from 4.0% in the third quarter. October factory orders rebounded 1.5% from -2.4%. ISM services index climbed to 57.4 from 53.1. These results cast momentary doubts through the curve, but prices soon recovered.
PIMCO's Bill Gross anticipated the that "bond market's salad days are over" in his December Investment Outlook, expecting that the government and Fed would succeed in vanquishing deflation risks, repeating these views later on CNBC. He favored eurozone bonds, emerging market bonds, some investment grade corporate bonds and TIPS. Yet there was some talk of bund sales for bonds ahead of the ECB.
The March bond closed 19/32 higher at 108-17 and the two-year note and 30-year bond spread gained two basis points to +301 basis points.