Treasuries shrugged off their post-payrolls funk on Wednesday, rebounding after the Veteran's Day holiday break, despite a solid day on Wall Street. With data and events in short supply, a safety bid was rekindled via the latest bombing in Iraq (along with U.S. retaliation), the broadening mutual fund scandal, and episodic rumors of hedge-fund liquidity problems. This helped set up a corrective squeeze higher as some of Friday's shorts ran for cover.
Otherwise, supply featured, though the belly of the curve managed to navigate the $16 billion 5-year auction. The sale enjoyed a 2.27 bid/cover ratio, but failed to stimulate more than 31% interest from foreign indirect bidders. The Fed also bought $1.46 billion in shorter-dated Treasury-notes in a coupon pass.
In other corporate and agency supply, Pepsi Bottling (PBG ) announced a $400 million 10-year deal and Freddie Mac launched a $5 billion 3-year deal. PIMCO manager Bill Gross mulled the risks of the great Treasury carry trade (borrow short, lend long). The December bond closed up 25/32 at 107-24, while the 2-year note and 30-year bond spread tapered in 3 basis points to +320 basis points.
Gold rallied to fresh cycle highs of $395.85 an ounce as global growth and geopolitical stains provided a fertile backdrop for gains.