Undermined by a sizable 23,000 drop in distortion-free jobless claims Thursday, Treasuries slumped lower as stocks initially rallied, led by prices at the long-end.
Initial jobless claims declined to 382K from an upwardly revised 405,000, and sources in the Bush Administration and Fed were quick to claim that (along with the September payrolls results) the labor picture was brightening somewhat.
Fed Governor Ben Bernanke implied as much in his speech on equities and policy, but said that greater improvement was required ahead and policy tightening could well lag, given lingering deflation risks.
Following Wednesday's successful 5-year auction, the Treasury enjoyed a strong 2.25 bid/cover ratio on its $9 billion TIPS offering. Reaction to the sale was blunted by its niche status and the proximity of Bernanke's speech.
The December bond closed closed down 24/32 at 107-15, while the 2s-30s spread gained a basis point to +355 bp. Ten-year yields backed up to 4.35% from 4.22%, but eased to 4.30% by the close.