Awash with sovereign, corporate and agency supply Wednesday, the Treasury market shouldered its burden well. Prices gained prominently at the front end of the curve, as the $16 billion 5-year auction went better than expected and foreign participation was very high, despite ongoing dollar weakness.
Stocks finished marginally in the red and data was limited to wholesale trade figures. Media focus was on the new "governator" in Sacramento, Arnold Schwarzenegger, and more losses reported among the 12 regional Federal Home Loan Banks. Supply and rate lock selling initially weighed on Treasuries, but they soon got over it on-the-fact.
A heavy dose of corporate and agency issuance also crowded the field, and briefly pushed 10-year note yield towards 4.30%. But, shorter-dated paper soon snapped back after Russia denied earlier rumors that it was considering pricing its oil exports in euros -- which could have had a long-term impact on demand for Treasuries.
A spate of roll activity was also detected by mortgage accounts on call positions on bonds and 10-year notes. The December bond closed down 4/32 at 108-06, while the curve continued to steepen, with the 2-year note and 30-year bond spread gaining 4 basis points to +354 basis points. Governor Bies extended the run of relatively bullish Fed remarks on the economy.