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Treasuries Finish in the Red

Light trading and safe-haven unwinding on the second anniversary of September 11 kept prices lower. On Friday, traders will look to PPI, retail sales, and University of Michigan sentiment data

Focus was rightly on remembrance Thursday, rather than trading, as the anniversary of September 11 resonated in exchanges and dealing rooms around the U.S., which paused to reflect in silence at four fateful junctures this morning. Otherwise, activity was hampered by the Treasury-note auction, which drew out a little concessionary offer in advance, while the previous day's safety premium was taken out as well.

Data was out of the way early and never really a factor intraday, though the gain in jobless claims to 422,000, vs. a much lower 400,000 median, briefly helped buffer Treasury losses. The trade deficit widened to $40.3 billion, while trade prices were relatively damp. The $13 billion 10-year reopening went reasonably well, considering its small size that helped boost the bid/cover to 2.23 (from 2.0), but dealers were not faked out by this and prices softened. One shop continued to scoop up 116 calls on March bonds, in what appeared to be a growing (+40,000) mortgage hedge.

The December bond closed 25/32 lower at 106-31, while the 2-year note and 30-year bond spread steepened one or two basis points to +352 basis points. The State Department warned over the risk of Al Qaeda attacks in Europe, Asia, and the Middle East, while Israel threatened to expel Palestinian leader Yassir Arafat.

August PPI and retail sales data are scheduled to be released Friday at 8:30 a.m. EDT; the preliminary September index of consumer sentiment from the University of Michigan is scheduled be revealed at approximately 9:45 a.m. EDT.

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