Stocks managed to stage a late recovery, but from beaten down levels most of the session. Treasuries were bid from the get-go, with two-year and five-year futures particularly in demand. Some aggressive demand for "calls" on the December bond was noted ahead of the weak data, amid persistent demand from a European bank the past couple sessions.
Leveraged "black box" and hedge fund bids were also pervasive right after the data, with some profit-taking noted from the highs after the bond posted a two-point gain. The December bond closed 1-19/32 higher at 110-19, though off its 111-01 session high.
Two-year yields broke back below the Fed funds target of 1.75%, 10-year yields fell back below 4.0% for the first time in two weeks and the bond tested 5.0%. The two-year note and 30-year bond spread widened another five basis points to +325 basis points, on the relative safe harbor offered by the front-end. Japanese
Trust banks were rumored buyers of two-year notes and five-year notes ahead of Wednesday's Bank of Japan meeting and banking reform package announcements.