Treasuries Blast Higher
Both Treasuries and stocks managed to close out Friday's session with gains, each focusing on a slightly different tale told by Friday's data. Supply was also under the microscope, with curve activity driven by those seeking a haven from next week's likely $44 billion refunding announcement on five-year and 10-year paper.
Durable good orders plummeted 5.9% in September, well below expectations, potentially a sign of disruptions from the port lockout as well as potential monthly distortions in the aircraft sector. Nevertheless, the front-end of the curve shot to session highs and dragged the back along with it. University of Michigan consumer sentiment was only revised up a tad, but home sales surged smartly and took a little starch out of bonds and bolstered stocks into the close.
The Nasdaq was powered up by Microsoft gains and drug makers were upgraded by Lehman Brothers, which supported the broader indices. Euro dollar futures, Fed funds and the two-year note all sharply outperformed and some of these inflows were said to come from the belly of the curve as a setup for next week.
The December bond closed up 18/32 at 109-1/32, just slightly off its highs. The curve steepened and the two-year note and 30-year bond spread blasted out 11 basis points to +311 basis points, despite the WI roll this week.