The 5-year note was the big loser on the day. Its yield surged over 20 basis points intraday, piercing the 3.50% yield barrier before closing at 3.45%. The 2-year wasn't far behind, closing at 1.90%. The bond was saved somewhat but curve flattening trades, holding at a 5.28% yield. The 2-year note and 30-year bond spread was squashed by the 500 lb. Philly Fed gorilla.
While stronger data and unwinding of last week's blackout safety bid has been in effect all week, the Philly Fed report narrowed the gap another 12 basis points to around +336 basis points Thursday. Fears continue to rise that the Fed's window of accommodation through the foreseeable future is closing fast. Fed President Poole's comment that the market may have misunderstood the Fed's May 6 statement added to the bearish tone and was not offset by his statement that the Fed is not on a "hair trigger."
The dollar was the other big story today, surging against most major currencies, and dipping briefly below $1.09 versus the euro.