After a week of robust gains following the Fed's reference to deflation risks on Tuesday, Treasuries had a small hiccup Friday as stocks turned the tables, but quickly recovered from their shallow corrective dip. Stocks staged a 1-2% rebound after recovering from their post-FOMC depression, helped higher by the tech sector and gaming chipmaker Nvidia.
The curve initially flattened further on perceived risk of the Fed targeting longer maturities in its operations, but finished unchanged. Volume selling kicked in on September 10-year notes and bonds after benchmark 10-year yields held above March lows of 3.546%. Mortgage related selling of 5-year and 10-year notes was reported, as was some NOB (10s for bonds) buying.
The June bond closed unchanged at 116-10 after trading as low as 115-23, while the 2-year note and 30-year bond spread finished unchanged as well at +323 basis points. Chicago Fed's Moskow warned against overregulation of corporate standards, but said he favored eliminating double taxation of dividends.
The dollar traded flat on net, weaker against the euro, but stronger against the yen amid rumors that the BoJ was covertly massaging the dollar higher. Treasury Secretary Snow saw "no risk" of U.S. entering a significant deflationary period.