Treasuries Collapse in Late Trade

Wall Street gains and stronger home sales data spurred profit taking in bonds

Treasuries closed a rather languid Wednesday session near the day's lows, with the long bond off about 10/32. Unwinding of curve steepeners was the main event, while supply, data, stocks and technicals all had supporting roles. The long bond outperformed the rest of the curve through the day, as stronger than expected data was a catalyst for profit taking on the recent steepening trades.

Record gains in home sales caused some to fade their aggressive Fed easing expectations. The weight of supply also depressed the short end. Set up ahead of the Treasury's $10 billion two-year sale boosted the yield. A ton of two-year and three-year corporate and agency paper also left that sector heavy. These factors out-muscled the bullish impact of the Fed's $1.28 billion coupon pass.

Meanwhile, the bond benefited from the curve trade, as well as a larger than expected bond buy back announcement. Though the bond hovered in positive territory most of the day, a late surge in stocks knocked all treasuries under water.

In options, Tuesday's buyer of June 10-year 110 calls added to that position for a total of 60,000 over the last two days.

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