The Wall Street Journal had a banner day, with two articles on the topic of Freddie Mac and Fannie Mae's derivatives practices as well, which helped push out agency spreads. General Motors announced a $10 billion issuance package, which, combined with the policy dilemma and the upcoming 2-year auction, kept the supply calendar crowded and Treasuries squeezed out.
Fed Governor Kohn appeared to endorse the Fed's strategy of greater verbal transparency, especially while interest rates are low. This could hint at some reluctance to test the "zero bound" on rate soon and, combined with a terror threat on the U.S. Embassy in Kenya, may have contributed to some late short-covering.
The September bond closed down 20/32 at 118-18, above lows of 118-00, while the 2-year note and 30-year bond spread steepened 2 basis points to +327 basis points. MMS's Fed survey revealed an even split in the 25-basis-points to 50-basis-points easing camps.