Treasuries Pad Gains as Stocks Dive Again

Treasury prices rose after a sharp drop in the stock market, triggered by the University of Michigan's negative consumer sentiment report

Treasuries padded gains to round out the week on Friday, with another false start on Wall Street despite an upsized Dell earnings forecast and Juniper beating the Street. Retail sales data surprised on the upside with a 1.1% gain in June, but the other data shoe to drop was much more friendly with an 86.5 print on July U. Michigan sentiment, well down from 92.4 in June.

Accordingly, Treasuries fractionally skulked lower at the open when stocks had their flash in the pan and after retail sales, then rallied sharply on U. Michigan, before dealers pulled in their horns. Another late prolapse on stocks stoked the bond bid into the close and the curve extended its steeper profile. The September bond initially slid to 104-17 session lows before mustering gains to 105-21, but closed +5/32 at 105-08.

The two-year note and 30-year bond spread sported a gain of four basis points to +280 basis points, the widest gap in nine years. Outright flows dried up pretty quickly after the data, though there was one noted buyer of 8,000 puts on August 10-year notes.

The Dow underperformed and anchored with a 1.3% loss, though the S&P lagged with a 0.64% loss and Nasdaq appeared sold out at -0.06%. The dollar hugged lows, but BoJ threats supported.

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