Treasuries Firmer on Short Covering

Weaker stocks and Latin America worries pushed Treasuries higher

Bearish momentum carried forward at the long-end for the bulk of Friday's session, with steepening trades still ruling the curve. Prices at the front-end held firm following the Fed's between-meeting prescription this week, amid worries of mounting Latam risk via the Argentina default/Cavallo resignation rumors and a Brazilian political scandal.

Two-year yields dipped back below 4.25%, while prices climbed most sharply on bills. In contrast the June bond collapsed in on itself all the way down to nearly par before settling just in the red at 100-16. Some said declining fiscal visibility after the rise of the budget deficit in March and comments from Treasury Secretary O'Neill late Thursday interpreted as commuting the death sentence on the bond added to 2s/30s steepening which pressed to fresh wides of +158 basis points. Dallas Fed's McTeer warned of a return to excessive pessimism in the equity markets, but said the Fed action this week should help shore up consumer sentiment. Investment grade and junk spreads continued to draw strength from hopes of a second half recovery, though stocks closed in the red.

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