Directional assistance from stocks and the dollar was also lacking, leaving prices to drift lower amid indifferent trade. The 13.3% drop in the MBA mortgage index was hardly a surprise given the decline in refinancings, and the early news was little solace.
The September bond closed 20/32 lower at 106-09, though it managed to finish above session lows of 106-00. The front-end of the curve underperformed right in line with supply, while the 2-year note and 30-year bond spread ended 4 basis points flatter at +333 basis points.
Adjusted for the When Issued roll on the new 2-year notes, the spread will drop down to the +325 basis points area. Agency and swap spreads narrowed despite the weak tone on Treasuries, taking a break from recent widening on a rare day without any more negative government-sponsored enterprise press.