Treasuries posted strong gains across the board as a Bank of Japan inspired rebound in the dollar added to bullish momentum from weaker-than-expected data, struggling stocks, and month-end/quarter-end demand. Bonds started the last day of the third quarter on solid footing, benefitting from asset allocation trades out of stocks after disappointing news from Sun Microsystems.
But, the real buying burst came from much weaker than expected Chicago PMI and consumer confidence data for September, which revived fears that third-quarter economic strength would not be sustained. Though prices were moving noticeably higher even before the 10 a.m. EDT embargo times, the erosion in the Chicago PMI to 51.2, from 58.9 (57 was the consensus), and confidence to 76.8, from 81.7 (81.3 was the consensus), accelerated the buying frenzy.
Very short-dated instruments outperformed as the Fed's tightening expectations were pushed back further. Meanwhile, the dollar extended its declines and threatened to break 110.00 against the yen. But, reports of Bank of Japan intervention generated a quick turnaround in the buck of over a figure. After some mid-day profit taking on Treasuries, bonds found renewed energy into the close on month-end/quarter-end indexed buying. 10-year notes finished up over a point at 3.93% and the bond up over 2 points at 4.88%.