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Treasuries benefitted from a short-covering rebound Friday, enlisting support from benign inflation data and some swap activity. Gains were most pronounced in the belly of the curve, which had been inundated with a variety of supply this week. Ahead of the long Columbus Day holiday weekend in the states, technicals and position-driven gains set the tone, with little directional input from neutral stocks or the damp dollar.
PPI posted an above-expected 0.3% gain in September, but the core result was "unchanged" and just 0.1% year-over-year -- one of the mildest readings since the survey began in 1973. The trade deficit narrowed below $40 billion, likely helped by the weaker dollar and perhaps some distortions from the Northeast power outages that disrupted supply chains on the East coast.
Flows were light, but dominated by some 10-year demand relating to the swap market, that helped narrow the swap spread thanks to receiving interest in that maturity. The Dec bond exorcised its post-claims drop with a 21/32 gain to close at 108-03, while the 2-year note and 30-yaer bond spread closed unchanged at +355 basis points. Dallas Fed's McTeer hoped that the jobs gain in September was the prelude to a better labor trend. The CRB commodities index gained 1.1 points, thanks to energy and livestock.