Treasuries End Lower

Refunding concerns and stability in equities kept bonds from enjoying the drop in consumer confidence

The refunding blues and relative equity stability Tuesday hindered Treasuries from enjoying the full benefit of a sizable drop in consumer confidence in July. Losses were heaviest in the front and belly of the curve, which were swollen with anticipated supply and a sense of the tide turning in favor of stocks. Recovering from their sharp initial slump, equities clawed back for most of the session, overcoming a 9.3-point drop in consumer confidence to 97.1.

Attention will now shift to any surprises hidden in tomorrow's second-quarter GDP report and benchmark revisions, with growth seen at a more tempered 2.3-2.5% pace. Bush signed off on corporate accounting legislation and this may have provided some solace to stocks, while there was also a CNN report that Bin Laden's body guards had been incarcerated in Guantanamo, implying that he was "probably" dead.

The Sep bond closed up 3/32 at 104-23, though the rest of the maturities closed under water. The 2s-30s spread accordingly narrowed back below +300bp for a loss of 2 bp. The dollar padded overnight gains, helped by the more benign equity environment.

From Standard & Poor's Global Markets

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