Friendly data headlines on housing starts and initial jobless claims provided the initial excuse to cover short positions. Buying was extended further on the dip in the Philly Fed index. Prices continued to rise through the afternoon on reported fund and real money demand.
The belly of the curve outperformed, finally coming up for air now that the heavy dose of Treasury and corporate supply is out of the way. A 1.6% drop in April housing starts and further gains in continuing claims and inital claims were the early movers for bonds. Treasuries maintained modest gains and extended higher after the Philly Fed index dipped 3.1 pts to 9.1. Initially the bond didn't respond given the jump in the prices paid component, but with surge seen as an energy story rather than an inflation threat, the bond tried to catch up with the rest of the curve and managed a half-point gain by the close.
Fed funds futures also eased back expectations for an August rate hike to about 75% from 100% Wednesday.