A solid 5.2% rise in the MBA mortgage index and an 0.4% gain in factory orders were mostly in line with expectations and didn't sway sentiment much. In terms of flows, a large Midwest bank padded a 25,000 118-00 call position on September bonds and mortgage-related activity was reported in the belly of the futures and swaps curves.
There may have been a little short-covering into Greenspan's "Money in Motion" exhibit remarks, in case he dropped an deflation hints, but he stuck closely to the script. The September bond closed 7/32 higher at 117-11, while the 2-year note and 30-year bond spread widened 3 basis points to +331 basis points as curve steepening trades continued to be plied by leveraged accounts. The wings of the curve initially outperformed the belly, but the front-end came out on top led by the 3-year note in the end.
The dollar index fell from 94.40 to 94.00 thanks yen gains from foreign N-225 demand.