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Treasuries overcame a mixed smattering of data mid-week and a stock market revival to dig out of an early hole and finish on a steeper slope. Headline data was led by a slight drop in the ISM index to 53.7 from 54.7, though new orders gains and along with the mild 76,500 in layoffs reported by Challenger initially dented prices. Construction spending gained 0.2%.
The bond dipped a half point, but bounced back in choppy pre-payrolls trade. Much of the flow was at the front-end of the curve, which outperformed led by solid demand in the lead month euro$ future. Leveraged accounts scooped up over 34,000 in the March 2004 contract, which may have been offset against weaker deferred contracts or Treasuries as a curve or spread bet.
Option activity was said to be keeping a lid on the long-end, with one bank selling 6,000 109 calls on December bonds on behalf of a mortgage client. An Asian account was rumored buying FoBs (5-year notes for bonds) as well. The December bond closed down 3/32 at 112-02, while the 2-year note and 30-year bond spread widened 2 basis points to +344 basis points.
Swap and agency spreads also pushed out a couple bp, driven by the front-end. Fedspeak from Broaddus was mostly bullish on the economy, while Gramlich pushed for a "non-binding" inflation target