Treasuries End Week on a Sour Note

A jump in a key consumer sentiment index spelled trouble all along the curve

Look out below! Friday was a painful end to an abysmal week for Treasuries.

Carnage followed a week of heavy government and corporate issuance in the middle of the curve which underperformed sharply after volleys of firmer than expected data shot down prices. The scale of the moves, with nearly 2-point declines on the June and cash bonds at one point, was all out of proportion with the 0.8% retail sales rise and 0.2% gain on the core producer price index (PPI) figure. Back months on retail sales were revised lower and PPI was firm, but not far off median forecasts.

It was the jump in University of Michigan consumer sentiment to 92.6 from 88.4 and dealers caught sitting on paper to distribute, however, that ripped the spine out of the curve. Stocks actually declined on the session, worried that the Fed is nearing the end of its easing cycle, and this put bonds off as well.

The June bond broke below par initially, ultimately closing down 1-27/32, nearly into the 98-handle; tens finished off a bearish daily H&S pattern with a break below 103-10. Fed funds futures pegged a half point cut at 50/50 odds, but surveys remained 95% confident of a move that size Tuesday.