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Prices at the back-end of the curve recovered some poise by the end of the week, with curve flattening and front-end underperformance intact since the FOMC on Tuesday. Idle stocks, a record budget surplus and neutral remarks from Greenspan Friday supported that trend as well.
After bouncing from the 99-00 area on Wednesday morning, the June bond repaired 2/3rds of the damage done the prior week and by Friday knocked on the door of 101. Meanwhile, maturities of 5-years and below closed underwater and the 2s/30s spread narrowed to +141 basis points from +150 basis points to start the session. Stocks ran into another wall of earnings woe thanks to Dell, Palm and Agilent, but a New York Times report of a $40 billion bid for Lucent by Alcatel of France evened the score.
Thanks to strong tax receipts, the U.S. budget surplus vaulted to $189.8 in April, from $159.5 billion last year. The March trade deficit blasted back out to $31.2 billion from $26.9 billion and sparked some revisionism on Q1 GDP to 1.3% from the 2.0% area.
Gasoline prices shot higher the day after Bush's energy outline offered no quick fix and nearby crude topped $30 a barrel.