Thursday's sharp curve steepening made a hoax out of the prior week's gentle flattener, as a cascade of stops were tripped at the long end thanks to a variety of catalysts. Gains set in the wake of a cycle high for initial claims of 432,000 lulled bulls into a false sense of security, especially as the data was upwardly skewed by Memorial Day.
After setting session highs of 101-11, the September bond collapsed back below 101-00, then 100-15 congestive support before finding some traction down at 100-08. Likewise, the 2s/30s curve exploded from the +150-basis-point area late Wednesday, steepening to +162 basis points by the close. Technicals played a hand in the long liquidation against 10s and the cash bond alike, with the September bond running into its 50-day moving average and the cash bond reversing ahead of its 200-day moving average.
Large lot dealer selling on September 10s and the bond was rumored on back of leverage accounts, amid talk of asset allocation into stocks (Semis gained ahead of Intel's mid-quarter update). A $1-3 billion sale of cash bonds and a corporate bid list floated around. Fed's Parry remained concerned about business/consumer spending ahead.