Treasuries raced past the checkered flag Friday, finishing in winning form after confounding bears all week with a stunning short-covering rally. Largely solid data seemed to have little bearing on the bullish price action, with the rally generating self-propelling momentum.
True, retail sales did slip 0.3% in October, but the damp consumption figure was anticipated. Thanks to sharp gains in the price of beef and the roll over to a new model year on autos, the Producers' Price Index (PPI) soared 0.8% in October and core PPI gained 0.5%, though much of this was accordingly explained away. Industrial production and capacity use data was relatively neutral at +0.2% and 75.0% respectively. But U. Michigan consumer sentiment surged to 93.5 in November from 89.5, with firmer sub-components to boot.
Yet Treasuries sustained a strong overnight bid from Asian accounts and after a scramble to buy bund calls. One U.S. broker was also an aggressive buyer of December 2005 eurodollar futures to the tune of more than 40,000 over the past couple sessions as the recent mild strain of Fedspeak continued to underscore policy patience into next year. The December bond closed up 23/32 at 110-09, decisively snapping out of its wedge pattern to the upside. The 2-year note and 30-year bond spread steepened 2 basis points to +324 basis points.