A wave of stock exuberance overseas sent Treasuries into the dog house early on Wednesday, but they got a pass out by afternoon trade and finished in positive territory -- ahead of key labor data Thursday and the long holiday weekend. An analyst rating upgrade on Microsoft helped the technology sector resume its leadership role, with the Nasdaq finishing over 2.3% higher.
A solid 5.2% rise in the MBA mortgage index and an 0.4% gain in factory orders were mostly in line with expectations and didn't sway sentiment much. In terms of flows, a large Midwest bank padded a 25,000 118-00 call position on September bonds and mortgage-related activity was reported in the belly of the futures and swaps curves.
There may have been a little short-covering into Greenspan's "Money in Motion" exhibit remarks, in case he dropped an deflation hints, but he stuck closely to the script. The September bond closed 7/32 higher at 117-11, while the 2-year note and 30-year bond spread widened 3 basis points to +331 basis points as curve steepening trades continued to be plied by leveraged accounts. The wings of the curve initially outperformed the belly, but the front-end came out on top led by the 3-year note in the end.
The dollar index fell from 94.40 to 94.00 thanks yen gains from foreign N-225 demand.