The locus of fear shifted from the Middle East to the Far East this week and Treasuries capitalized on the latest Asian developments to extend gains on Thursday. SARS travel warnings and closure of a Beijing hospital got the ball rolling in Treasuries' favor early, but thorny negotiations with North Korea (who admitted to nuclear arms and threatened to walk out of talks) proved the larger catalyst for gains.
Among other Asian-based fear factors were lower New Zealand rates partly in response to SARS, talk of Japan hedge fund troubles, Japan life insurer demand for foreign bonds and N. Korean petulance.
Data cancelled itself out early, with a large 2% gain in durables and 8,000 gain in initial claims both contrary to expectations. This left the path open for leveraged "black box" funds to bid up prices across the maturity spectrum. The June bond closed up 1-5/32 at 113-09, while the curve flattened, with the 2-year note and 30-year bond spread sinking 3 basis points to +321 basis points.
In terms of supply, agency Fannie Mae sold $4 billion in 3-year notes. Stocks and the dollar slid. Pervasive Fedspeak from Chicago Fed's Moskow and Governor Bernanke was relatively optimistic, though Moskow was unsure the Fed would have enough information to alter the non-bias by May 6.