Treasuries Close Higher

Treasuries climbed on weak Japan production data and the stronger U.S. dollar

Treasuries posted solid gains across the curve Monday, belying expectations for a quiet start to the week. Short and intermediate issues outperformed on a variety of factors, while the long bond closed 23/32 tics higher. Weak first quarter GDP data from Japan got the ball rolling overnight, and from then on, a strong dollar, a decline in stocks, a Fed outright purchase, and technicals all helped out. Signs that the U.S. slowdown is spreading and may be pushing Japan back into recession gave bonds an early bid.

Gains were extended through the morning as the dollar gained ground against the yen and EUR. Meanwhile, the NASDAQ, still smarting from Juniper's earnings warning last week, fell over 2% and pulling down the Dow and S&Ps with it. Note the dollar managed to weather the weakness in stocks, riding high on faith that the Fed and tax cuts will rescue the economy. The Fed's purchase of $471 million in TIPS was also supportive.

Hedge funds were reportedly good buyers of 2-year notes. The break of 100-22 resistance on the September bond added to the positive tone, as did benign comments from Fed President McTeer.

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