Thursday was a busy session, but loaded with data rather than the Fedspeak which crowded the previous day. Yet the long-end of the curve opened firmly in anticipation of the bond buyback, also due to curve flatteners and CTA (speculative) short-covering.
Media Fedwatchers second guessed Fed Chairman Alan Greenspan's Senate remarks from Wednesday, but still didn't offer a compelling case for a 50-basis-point FOMC cut over 25 basis points. Data was also inconclusive, with the April trade gap narrowing from much wider revised March data, while initial claims plunged back down to 400,000 from 434,000. This combination may have contributed somewhat to underperformance at the front-end, but Greenspan's reiteration of low inflation risks the day before had set the stage for unwinding of curve steepeners from +177-basis-point wides to the +165-basis-point area. Following the $1.75 billion bond buyback, profit-taking pulled the September bond back down from 102-08/09 session highs (100-day m.a.), but it still closed up 10/32 at 101-26.
The June Philly Fed index climbed to -3.7 from -8.8 and the six-month outlook surged, but other components sank and prices paid surged.