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Investors rekindled their passion for Treasuries the day after Greenspan's Joint Economic Committee testimony, despite signs of resilience on Wall Street. The move continued to be powered by the belly and long-end of the curve, amid hopes that policymakers will gravitate that direction. Also, a bond-bullish John Berry article in The Wall Street Journal indicated that the Fed would ease to prevent deflation.
Labor data was relatively friendly, with a 7,000 gain in initial jobless claims, but the initial spark came from a very dovish reading of yesterday's testimony by Washington Post Fedwatcher Berry. This gave some respite the front-end, which had weakened after intermeeting Fed cut hopes were dimmed.
Flows were light ahead of the long weekend, with persistent Asian demand at the front-end reported. Some volume selling on 10-year notes also kicked in, front-running time decay as prices backed and filled Wednesday's late correction. Late in the session the U.S. closed its Olso embassy due to an apparent terrorist threat, adding a safe-haven bid to the mix.
The June bond closed up 24/32 at 121-05, while the 2-year note and 30-year bond spread sank 5 basis points to +295 basis points.
Fed's Olsen anticipated robust future growth, but worried about sluggish capital spending. The Nasdaq closed above 1500, gaining 1.1%, helped partly by agreement on a $350 billion tax cut. Treasury postponed the bill and 2-year note announcements.