Treasuries Extend Gains on a Safety Bid

Treasuries skipped a beat on data, but recovered on damp stocks and terrorism-related rumors

Treasuries skipped a beat after fourth quarte GDP was revised up, but relatively unfriendly data did not keep a good bond down for long as month-end duration demand, damp stocks, rumors and the geopolitical plight kept the safety premium elevated. It was a wild Friday ride, but Treasuries finished with the upper hand, with fresh contract highs across the board and the lowest cash yields since the Fall. Q4 GDP was revised up to 1.4% from 0.7%, Chicago PMI slipped to 54.9 from 56.0, while U. Michigan consumer sentiment final reading at 79.9 was higher than 79.2 originally reported.

Any positive news on the economic front, however, was eclipsed by a number of risk factors. Among them, month-end indexation demand, a climb-down by PIMCO on its view that the bond's "salad days are over," the Blix report Saturday, FBI fly-overs above Indiana University spawning spurious hijack talk, white powder found in a House letter, and war plans on North Korea. These factors ran the full credibility range, but helped keep bonds elevated, even after the futures close. The June bond closed up 26/32 at 114-15, near its highs, while the curve held steady. St. Louis Fed's Poole said the Fed would respond vigorously to market upsets, if warranted.

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