Treasuries Pare Losses, but End Lower

The Treasury market ignored weak payrolls data and focused on easing geopolitics and hopes for a positive outcome in Iraq

Treasuries hammered around in a one point range once payrolls data was out of the way, first plunging despite the damp news, as the data hurdle provided the excuse to test the downside on apparent further war progress around Baghdad. Non-farm payrolls sank 108,000, and last month's drop was revised to -357,000 from -308,000, though the unemployment rate held pat at 5.8% and distortions from the war, reservists, and weather were rampant in the data.

It was a veritable Saddam look-alike pageant on Iraqi TV, which could not be viewed in Baghdad, though markets took seriously a threat from the Information Minister who said that Iraq would use "unconventional" means to attack the Allies. Along with early pre-weekend selling exhaustion, this helped Treasuries rebound towards opening levels.

Meanwhile, the steep curve set fresh 11-year wides at +342 basis points, gaining 2 basis points, and continuing to benefit from the duality of near-term war risks and hopes for a positive outcome. The June bond closed 9/32 lower at 111-08, and in the end only the 2-year note closed in the green. One analytical firm went out on a limb for an intermeeting Fed cut call, but the market didn't follow, as Fed fund futures still imply only about 10-15% risk before the next meeting in May.

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