The smart money stepped back into to catch a falling knife called Treasuries, helping support prices after 10-year yields pushed past 4.50% last week and prodding the curve back to its steeper footing. Data was limited to June Factory Orders, which gained 1.7%, but the as-expected result was virtually ignored by both stocks and bonds into the mountainous quarterly refunding that kicks off tomorrow with $24 billion in 3-year notes.
The front-end of the curve was boosted in overseas trade by Asian demand as stocks skipped a beat in the East, and weary U.S. investors followed their lead in subdued trade stateside.
On the flow side, there was talk of further asset-allocation switching from stocks to bonds after like activity on Friday. A weighty seller of puts on Dec 10s also appeared to be closing a bearish hedge, which added to the corrective tone on the session.
The Wall Street Journal covered last week's rumors of distress in the financial sector potentially among MBS shops, perhaps ironically helping to put a floor under Treasuries. The Sep bond closed 23/32 higher at 106-21, while the 2s-30s spread steepened 8 bp to +359 bp.
The dollar remained weak for the day, taking its cue from stocks, which were underwater until late in the session.
From MMS International