When the $18 billion 10-year auction just got too rich and failed to live up to expectations, the subsequent correction was brief and shallow, thanks to lingering Fed concerns. The 28,000 drop in jobless claims, to 425,000 had little negative impact, since it marked the 12th consecutive week above 400,000. After the ECB and MPC held rates pat, subsequent sharp 3-4% declines in European indexes weighed on Wall Street and helped sustain the Treasury bid.
The June bond closed up 13/32 at 116-09, while the 2-year note and 30-year bond spread narrowed another 3 basis points to +323 basis points. Swap and agency spreads tightened sharply on the dovish Fed outlook and WI roll from the refunding issues. As the dollar marked fresh four-year lows, gold nearly topped $350/oz for an $8 gain on the day. Japanese bank demand for dollars from 116 yen lows propped up the pair.