Much like stocks Monday, the report set the bearish tone (especially at the front-end) and prompted sharp initial curve flattening on the two-year note and 30-year bond gap by seven basis points to +236 basis points.
A rush of corporate and agency issuance in anticipation of higher yields also burdened the curve with deals of a variety of maturies. Swap spreads narrowed as hedging activity picked up for these deals. In outright activity there were some NOB purchases (10-year notes for bonds) against the grain of the flattener and a variety of European banks selling in the belly of the curve.
In options trade, calendar roll activity appeared the main driver. Two-year yields hit one-month highs of 3.4% and the June bond shed nearly a point to 100-5/32.