Treasuries Close Mixed

The long bond is left out of the rally as equities slump

Curve steepeners were in full force Wednesday, as another meltdown in the tech sector gave the short end of the Treasury curve a lift at the expense of the long bond. Indeed, the long bond failed to capitalize on the safe-haven flow and closed slightly lower on the session. Talk of unwinding of recent yen-carry trades, some asset allocation shifts into quarter-end, some inflation fears, and lingering concerns about the implications of Tuesday's confidence data left the 30-year heavy.

The 10-year note, on the other hand, was helped by a repo squeeze and expectations of a renewed convexity bid after a 36.5% surge in home refinancing was reported early in the session. The 6-month, one-year bill, and two-year note led the day's rally, especially as hopes for an intermeeting Fed easing were revived.

Along with the increased demand for liquidity, the reduction in bill supply amplified the drop in rates. The two-year note also benefitted from the drop on Wall Street, as suggested by strong auction results. Technicals also accelerated the steepening play following the break of the 1998 wides at +114.1 basis points.

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