Treasuries Sag at Finish

Firmer economic data and a rebound in stocks left Treasuries in the dust

Stocks consolidated their late Wednesday rebound and Treasuries relinquished some of their recent impulsive gains on Thursday, the day after a forgettable FOMC meeting. Relatively buoyant final Q1 GDP (+6.1%) and damp claims (-10K) numbers hindered bonds early on.

More underperformance was notable at the long-end after the Treasury cancelled a bill auction announcement, as tomorrow's "drop-dead" date on resolving the debt ceiling debate loomed. Apart from bizarre rumors regarding accounting irregularities at a GM unit, which momentarily gave stocks balance sheet "deja vu" all over again, Treasuries found little to be grateful for.

Indeed, the approach of month and quarter-end and the proximity of a long holiday weekend next week undermined the resolve of the bulls. The September bond closed down 1-10/32 at 102-30, the cash bond finished over a point lower and the two-year note and 30-year bond spread snugged back up three basis points from session lows towards +270 basis points.

Some very large option (call spread) roll-overs featured early on five-year notes and 10-year notes, while a prominent hedge fund was later reputed to have placed a large asset allocation bet against bonds and in favor of S&Ps.

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