Trading conditions in Treasuryland were extremely light, though firmer stocks, and solid construction spending and auto sales data provided stiff headwinds against much short-covering. The Fed's Beige Book economic survey sounded conservatively upbeat on the economy, though noting some labor market "slack," and Parry had some reservations about the durability of the recovery.
The limp tone on Treasuries generated some straddle selling on 10-year notes, which knocked volume lower, aided by the approach of payrolls on Friday. Duration-related hedging may not be a significant factor until 10-year yields hit 4.65-70%, though the next tidal wave of sovereign, corporate and agency supply issuance could crowd the field. The December bond closed 1/32 lower at 104-07, while the 2-year note and 30-year bond spread widened five basis points to +335 basis points.