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Treasuries End Higher

"The good, the bad and the ugly" wouldn't be a very apt characterization of the sizable $60 billion quarterly refunding, but close enough given the wide range of reception for the three-legged supply beast. After some initial cheapening, the final $18 billion 10-year leg was taken down with relative ease with a 2.0 bid/cover, a 4.37% awarded yield, and $240 million in noncomps -- an acceptable result given the extremes of the lowly 3-year note and princely 5-year note.

This left the primary market in good shape to distribute the wall of debt, at least until the sequel next month, after a relief bid helped prices recover in late afternoon. Though overshadowed by supply, the data was not insignificant. Second-quarter productivity surged to 5.7% from an upwardly revised 2.1% in the first quarter. Initial claims held below the 400,000 waterline for the third week in a row, and wholesale inventories came in flat in June, leaving potential for restocking in the third quarter.

Stocks also managed a measured rally on refunding relief, while the dollar finished on weaker footing following inane rumors that China would curtail its Treasury purchases. The refunding maturities outperformed on the day, while the September bond closed 11/32 higher at 107-26 and the 2-year note and 30-year bond spread lingered at +350 basis points.

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