Treasuries Soar at Close

More terror and war suspense fueled the Treasury bid

A confounding mix of data was shrugged off Thursday in favor of the steady drip-feed of terror/war suspense that has sponsored an ongoing bid in Treasuries. The belly of the curve outperformed, perhaps helped by gridlock on the debt ceiling that appeared to begin to crimp municipal supply, spilling over into Treasury demand. Risk events continued to be the main driver, including the following: North Korean fighter incursion over South Korea, eight terror funding arrests domestically and overseas, a Briton killed in Riyadh, haggling over the use of Turkey bases by U.S. troops, and a report that U.N. inspectors have not been happy with recent Iraq cooperation.

These developments were comingled with a 1.6% surge in PPI and a leap to a record trade deficit in December to $44.2 billion, while initial jobless claims jumped 21,000 to 402,000. Treasuries initially spiked down on the inflated PPI result, but were soon bolstered by risk aversion and weakness apparent in trade and claims, as well as mounting stock market losses. Leading indicators (-0.1%) and Philly Fed (2.3 vs 11.2) were also friendly. The March bond closed up 10/32 at 113-24, while the two-year note and 30-year bond spread steepened one basis point to +324 basis point. Gold padded gains at the expense of the fragile dollar.