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Friday's data was a home run for the bond market, which continued to price in a more tempered view of the Fed's likely monetary path. Both retail sales (+0.2%) and PPI (+1%, +0.1% core) were inflated in March by the surge in oil prices, while University of Michigan Sentiment slipped in April to 94.4 from 96.5 thanks to stock weakness and the Middle East conflict.
The collapse in oil prices after the ouster of Venezuelan President Chavez was a bonus as well, helping yields to close at their lowest level in over a month to set up the market for next week's JEC testimony by Greenspan. NYMEX May crude dove $1.5 to $23.70/barrel, following successive losses in April.
The June bond closed up 11/32 at 100-30/32, near session highs after reversing hard from 100-07 lows. The curve steepened on more suicide bombings in the West Bank, which combined with the benign data to widen the two-year note and 30-year bond spread by five basis points to 230 basis points before it stalled out.
Two-year yields slumped nearly 10 basis points to 3.32%, while the bond yield sank 6 basis points to 5.64%. Risk of a May Fed hike was virtually erased (12%) and fell below its previous "lock" for June (80%).