Treasuries extended declines Friday, but thin holiday conditions exacerbated the move lower. The reverberations of strong data and further weakness in dollar-euro added to the downside pressure on bonds.
The front end underperformed as unlike Wednesday, there was no support from safe-haven demand. The 5-year note surged over 10 basis points and climbed through the 3.35% yield level, while the 2-year note jumped 9 basis points to close through 2.06%. Meanwhile, the long bond lost a point and finished at 5.13%, as front-running of month-end demand on Wednesday left the 30-year without buyers today.
The strong data has done nothing to help the dollar, however, and it dropped to a record low against the euro to $1.2018, which increased fears that the capital inflows necessary to help finance the large twin deficits in the U.S., will dry up. There was no data for Friday's shortened session. Instead, players were looking forward to key data due out in early December, including both the ISM manufacturing and services data and auto sales, capped off by Friday's payroll report. Traders are talking about another large increase, on the order of 200,000, which might force the FOMC to reconsider its accommodative stance sooner rather than later.