Front-runners targeted the next key yield threshold on the T-note of 4.50%, which finally cracked by late afternoon before some short-covering kicked just ahead of the close. The long-end underperformed after Atlanta Fed's Guynn denied that deflation was an imminent threat and talked up the recovery.
Rumors of accounts seeking to fade the curve steepener for a post-refunding flattener also did the rounds. The September bond closed 2-12/32 lower at 105-20, while the 2-year note and 30-year bond spread widened 1 basis point to +364 basis points. Stocks then squandered their lead into month-end and ahead of payrolls/ISM -- cash yields eased up after the futures close. Agency and swaps spreads blew out once again.