Treasuries had a nice New Year's Eve rally going after consumer confidence plunged, but it soon fizzled faster than day-old Champagne thanks to month-end and year-end booksquaring, as well as some last minute institutional selling at the very end of the shortened session.
Consumer confidence plunged to 80.3 from 84.9, as joblessness, stock losses and geopolitical crises conspired to hurt sentiment in December. The result was well below median forecasts around 86 and even further from more optimistic forecasts near 88, which initially helped propel Treasuries to highs. Though the holiday retail season was said to be the worst in three decades, weekly retail sales data perked up (BTM: +2.1%, Redbook: +0.7%) thanks to late shoppers and early bargain hunters.
The March bond closed down 14/32 at 112-22, however, over a point lower than contract highs of 113-26 matched earlier in the session. The Lehman bond index extension was negative this month, which prompted an early exit ahead of last minute institutional portfolio adjustments. The two-year note set a record low yield of 1.54%, but the two-year note and 30-year bond spread finished flat.
The buck set fresh three-year lows, but recovered partly on Bank of Japan New Year intervention fears.