Treasuries Finish Lower

Growing expectations that the Fed will hike interest rates weighed on the market

Malingering at recent lows, Treasuries rounded out the week in negative territory. Yields continue to back higher, though most futures contracts bubbled back up to the surface by the close. Volume was well bid on the early test lower, more so as miserly trading volumes kept dealers on their toes. Prices opened heavily at the front-end and belly of the curve after some leveraged Bund and Euribor selling overnight and ahead of the pricing of $10 billion Fannie Mae issue of five-year notes and 10-year notes.

But, once the deal printed some downside pressure was taken off into midday as the fast money reduced some of their short-positions into weekend. Jun 10-year notes bounced from 101-29 Thursday lows, but closed -1/32 at 102-14. They found little upside traction despite the stock index heaviness for the third consecutive session. The wings of the curve outperformed the belly in line with supply, weaker stocks and a Fed coupon pass at the long-end. The 2-year note and 30-year bond spread narrowed two basis points to 211 basis points after dipping as deep as 207 basis points during the session.

Dallas Fed's McTeer apparently steered away from policy, the economy and political correctness.

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