Treasuries snatched victory from the jaws of defeat, overcoming data, rebounding stocks and profit-taking. While prices along the curve closed mixed, deficits were minimal compared to deeper initial losses and the front-end of the curve proved the most resilient.
Durable goods orders sank 0.6%, but this was far less than the median 2.9% drop expected from a very strong 8.6% gain in July.
Initial claims also surprised, tumbling 24,000 for the week ended Sept. 21. August new home sales rose 1.9% to a new peak from downwardly revised July data. Along with initial gains in stocks and unwinding of convexity hedges, this sent the bond down over a point. But, the front-end would just not stay down and there was good demand for shorter dated euro$ contracts.
News of a French airliner discovering plastic explosives onboard may have kept the front-end's premium elevated following talk of some sort of event risk. The December bond narrowed its gap to -2/32 by the close, recovering to 113-00 from session lows of 112-04. The two-year note and 30-year bond spread widened a couple basis points to +278 basis points.
FOMC minutes in August gave a mixed view of the signal sent by a rotation back to the easing bias, though risks of ongoing sub-par growth influenced the decision.