Treasuries mounted an all-out assault on October highs on Thursday following dovish Fedspeak, tame data, and a well-received quarterly refunding. In an early interview, St. Louis Fed's Poole suggested that the Fed could keep rates low well into the spring.
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.