Wall Street diverged after NASDAQ hit the skids following Cisco results overnight and news that Microsoft had not outrun its European anti-trust probe. NASDAQ closed over a percent in the red, while the Dow and S&P barely held on to the green.
The 5-year note auction enjoyed strong interest, with a bid/cover of 2.48 (compared to 1.3 for the 3-year notes) and $44.7 billion in bids for $18 billion in paper -- the highest since 1986. After the supply carnage on Tuesday, early talk that the 5-year note could be a happier affair helped Treasuries gain ahead of the results and afterwards.
Now the $18 billion 10-year note remains remains the final refunding hurdle, with perhaps more relief in store while stocks remain weak. The September bond closed 2-7/32 higher at 107-15, while the 2-year note and 30-year bond spread narrowed another 5 basis points to +348 basis points. Swap and agency spreads continued to narrow after last week's position-driven widening panic.