Treasuries were under pressure from the outset but it seemed to stem from a desire to lighten long positions ahead of Friday's payrolls data than from the firm factory orders data. Supply pressure and profit-taking selling evaporated as the market affirmed support from Thursday's lows. Now that some of the speculative excess has been trimmed, the market appears poised to explore higher levels after the payrolls data release.
The belly of the curve underperformed once again, particularly the five-year note, but there is no indication yet that the market is ready to resume a gradual flattening bias. As a result there is risk for modest curve steepening in the next few days targeting +192/195 basis points in the when-issued two-year to 10-year notes and possibly +245/247.4 basis points in the two-year note and 30-year bond before peaking.
Outright, both the June 10-year notes and June Bond are are starting to see a mild volatility expansion. Basing action above Thursday's lows sets the stage for another crack at the February peak at 106-120 briefly in the June 10-year notes. The June Bond should challenge late February highs at 103-14/15 before selling opportunties emerge.