One step forward, two steps back. Treasuries collapsed across the board, as still more pieces in the bullish economic puzzle fell into place, catapulting the stock market higher initially. Though the market opened up, the above-consensus gain in second-quarter gross domestic product to 2.4%, and a decline in jobless claims to +388,000, slapped prices back down. A robust Chicago PMI gain to 55.9 and healthy improvements in its sub-components threw more cold water on prices, and Treasuries fell hard as mortgage shops stepped up to shed duration again -- a self-fulfilling trend.
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.