After the long weekend rest, Treasuries had a roller-coaster session Tuesday, unfortunately more roller than coaster. Pronounced curve steepening looked somewhat corrective amid the flattening trend, but was worryingly the bearish variety as the cash bond finished nearly two points lower.
Stocks broke sharply higher past their May highs, for a 2-3% gain on the day, buoyed by an increasingly bullish trend in the tech sector. Data was relatively mixed compared to expectations, though sufficiently solid to lend to the defensive tone on bonds. Consumer confidence gained to 83.8 from 81.0, but the bulk of the gain was in the expectations component (94.4 vs 84.8). New (+1.7%) and existing (+5.6%) home sales remained robust thanks to record low mortgage rates.
Amid the sharp decline in prices, dealers were spotted selling bond volume and swap spreads widened. The June bond closed down 1-13/32 at 119-28, though the cash bond continued to sink lower after the futures close to -2-7/32. The front-end, however, closed in the green despite the upcoming 2-year auction and the 2-year note and 30-year bond spread charged 15 basis points wider to +307 basis points. Suspected BoJ intervention helped lift the dollar a figure to Y117.30 from Y116.20.