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Treasuries Finish in the Red

Treasuries lost momentum ahead of Friday's payroll report, with a dose of dollar weakness thrown into the mix. Data was out early, with a firm income and spending combination an expected result of the latest tax cut measures. The dollar stole the show, however, with a sharp 1.5% stumble on rumors that an investor advisory service said the dollar had further room to fall and related talk that the U.S. Treasury might abandon its strong dollar policy (later denied).

Stocks initially sank with the dollar, but this was only good for a temporary boost in Treasuries which marked session highs early and slid thereafter. Indeed, a weak dollar would be stimulative and potentially inflationary. There was some curve play between 5-year notes and bonds, as well as some short-covering at the front-end. Leveraged players continued to toy with the 4.0% handle, but the yield backed up to 4.07% by the close.

The market should play it pretty close to the vest with Fedspeak ahead and payrolls looming. The December bond closed down 25/32 at 110-11, while the 2-year note and 30-year bond spread gained 2 basis points to +339 basis points. Berkshire Hathaway prepped $1.5 2-tranche note offering via lead manager Goldman Sachs. The NASDAQ composite index had a good day, bouncing 1.8% ahead of its 50-day moving average.

On tap for Tuesday: Separately scheduled appearances by Chicago Fed President Moskow, Atlanta Fed President Guynn, and Richmond Fed President Broaddus.

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