Though the bond market extended Wednesday's gains overnight on news California Gov. Davis declared a state of emergency, stronger than expected data on housing starts and initial claims gave the market pause. The onslaught of supply was also a factor that left Treasuries heavy early on. But with California looking to go black again, and reports of more defaults by the two beleagured utilities, the bulls regained control.
Eye-popping weakness in the Philly Fed data added to the momentum and restored calls for a 50 bp Fed move. The Philly Fed
index fell to -36.8 from -4.2, its lowest level since 1990 when the economy was in recession.
Fed funds futures soared and are again pricing in some 90% probability of a 50 bp easing this month. Technicals extended the day's gains.