Weak Orders Data Lifts Treasuries

The non-manufacturing NAPM survey fell to its lowest level since inception; hedge fund unwinding also caused a price run-up

A combination of soggy data and hedge unwinding conspired to lift Treasuries on Tuesday, which helped the belly of the curve edge out the tails. The weak April factory orders result of -3.0% was tipped by a comparably soft durables report revealed in the last week of May, but March's result was sliced in half to a revised 0.7% as well. Non-manufacturing NAPM survey was especially weak, at 46.6%, falling to its lowest level since inception in 1997 and demonstrating the breadth of the slowdown. Yet, stocks rallied after shrugging off the data in favor of a couple of brighter technology reports (Xilinx and Comverse).

The September bond made three runs on the 101-handle and on the fourth try cracked that psychological barrier, assisted by the data and some mortgage-related demand for 10s and hedge lock unwinding on 5s following the $1 billion EBRD deal pricing. The front end was also supported by an unusual Fed bill pass which added $2.066 billion in permanent reserves. The 2s/30s spread widened to +155 basis points from the +151-basis-point area. Q1 productivity was revised lower to -1.2% from -0.1%, largely as the result of the downward revision of Q1 GDP.

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