Treasury Finish on a Strong Note

Treasuries extended gains on the break of key technical levels and as the Dow and S&P 500 drifted back into the red

Conditions were patchy at best on Wednesday, the day after an uneventful FOMC meeting. Yet, gains were pretty substantial along the curve, especially the belly enjoying a flight bid of sorts.

Stocks vacillated in and out of the red, helping bonds to leech some early momentum from their rivals. Rumors of an imminent sovereign ratings downgrade on Germany by S&P helped cement the flight into bonds, however quickly dismissed. An S&P analyst at a conference call on the subject later later expressed some skepticism about the German government's willingness to follow-through with structural/budget reforms, despite upholding the country's stable AAA rating.

A Dutch bank buying in March five-year notes for a leveraged account, combined with the pricing of a $3 billion FHLB 3-year issue to keep a bid kindled under the belly. The March bond closed just off its highs at 110-28 after rallying nearly a point to 111-01 session peak.

With all the focus in the middle maturities again, the wings of the curve scarcely changed. The two-year note and 30-year bond spread widened one basis point to +303 basis points. Neither bunds or the dollar showed much reaction the German rumors, though the euro did slip fifty cents in early New York trade after some selling from the continent.

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