As a whole, Treasuries' damp performance the day after the FOMC on Wednesday was not particularly compelling, though the September bond redeemed itself with a late rally back above the 105-handle. Stocks started out bid on upbeat new orders for chip equipment, lost their footing, then closed higher.
This schizoid behavior mostly kept the front and middle maturities under water, while the curve reneged on some of its recent steepness. The September bond found traction around 104-13 congestion and finished on highs, while the two-year note and 30-year note spread narrowed to +173 basis points from +180 basis points right after the FOMC.
A big inventory build and upwards back revision on natural gas inventories prompted a 10% drop in natural gas prices -- reflecting waning power demand in California via the slowdown and cool weather. This combined with a Washington advisor story on Fed surprise over the extent of the slowdown. This helped bolster the back-end against the front, which was beset by a strong German IFO report and IMF rescue package for Argentina. A fund sold two-year notes and five-year notes, while Japanese accts bought agencies. The dollar recuperated somewhat.