Treasuries Run out of Steam

Robust manufacturing data added to evidence of an economic recovery and pushed Treasuries lower

Treasuries' winning streak ran out of luck on Friday, but it could have been a lot worse considering the trifecta of robust economic data and outperformance of stocks until just before the close.

Supply, clandestine Bank of Japan dollar buying and news that both Britain and the U.S. were encouraging personnel to leave India also vyed for dealers' attention.

Phenominal U.S. non-farm productivity was revised down only marginally to 8.4% in Q1. Chicago-PMI surged over six points to 60.8 in May, factory orders rose 1.2% in April and final University of Michigan sentiment was nudged up to 96.9 in May.

Treasuries dusted off early steep losses, however, after stocks thought better of weekend event risk on the Indian sub-continent.

After stumbling as low as 100-19, the September bond closed at 101-04 for a 5/32 deficit. The curve mostly flattened after the front-end was stung by the strong data, with the two-year note and 30-year bond spread tightening two basis points to +241 basis points.

GECC brought a $6 billion package of five-year and 10-year notes to market without much fanfare and PIMCO manager Bill Gross confirmed that his firm had been bottom-fishing in telecom bonds in the U.S. and Europe.

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