After crossing the data threshold unscathed, the short-covering rally quickly gathered steam. The trade deficit expanded nearly $2 billion to $41.3 billion, but trade prices remained tame, and initial jobless claims backed up 11,000 to +366,000. The MBA index fell 8.6%, with the refi component down 10.1% and the purchase component off 7.1%.
On top of the dovish Fedspeak, the mild data helped push prices higher and yields lower, particularly at the front-end. Agency Fannie Mae's duration gap also remained steady at +1 month, which may have disappointed some leveraged funds who had been rumored aiming to stampede mortgage institutions into dumping Treasuries again. The 10-year auction went off without a hitch at a 1.9 bid/cover and solid demand from "indirect bidders," which include central banks.
The December bond closed up 1-25/32 at 109-17, while the 2-year note and 30-year bond spread gained 2 basis points to +322 basis points. Stocks finished in the red as profit-taking continued and the dollar limped home.