Treasuries Drop on a Surge in Oil Prices

Treasuries stalled Monday, snuffing out their extended rally last week. A couple of marquee events set a positive front-end tone early on, but gains soon fizzled and turned into deficits by the close. In pre-open trade, Iraq announced a month-long ban on crude exports tied to the resolution of the Israeli/Palestine conflict and Venezuelan oil workers went on strike. IBM then preannounced a large earnings miss, which combined with the near $1 surge in NYMEX Jun crude briefly above $27/barrel to send equities sharply lower at the open.

But, stocks clawed and scratched their way nearly to positive territory by the close and likewise profit-taking infected across the curve. The mix proved a tonic for shorter maturities and toxic to the long-end, though commodity prices on aggregate fell--the CRB index sank 1.5 points to 200.

The June bond stalled ahead of 101-00 and closed down 12/32 at 100-07. Fed fund futures and Euro$ rallied as a Fed tightening was further priced out of the picture, though stocks took some starch out of the steepener, with the two-year note and 30-year bond spread closing up two basis points to +221 basis points by session end.