The short-covering rally on Treasuries that began last week was compounded by terror threats of a wider and more specific nature over the weekend that helped propel prices higher, despite further evidence of improving economic fundamentals. Al Qaeda reportedly threatened the U.S., Australia, Japan, Italy, Great Britian, and Arab states with more bombings after Turkey was targeted over the weekend. The news knocked 3.7% from Japan's Nikkei-225, which was joined by European bourses and U.S. stock exchanges on the downside.
The New York Empire State manufacturing index exploded to a record high 41 in November from 34.1, sparking upward forecast revisions of other upcoming manufacturing indicators. Business inventories also gained 0.3%, though sales still outpaced them at +0.6%, leaving the inventory/sales ratio at 1.36 months. The dollar recovered after profit-taking prevailed on gold and commodity bloc currencies.
The December bond closed 13/32 higher at 110-22, while the 2-year note and 30-year bond spread steepened 2 basis points to +326 basis points -- thanks to reflationary Fed policy, weaker stocks, and the "safety" bid. Treasury's Snow covered a wide array of subjects ranging from China to tax and budget policiec. The budget gap grew to -$69.5 billion in October, from +26.4 billion.