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Treasuries wrapped up Payroll's Eve at the top end of the week's tired range, fighting their way back into winning form by the close. Initial jobless claims made a modest 11,000 bounce to 365,000, though this was not a material factor as the market set up for a solid payrolls number Friday.
Yet, the market was already looking past Friday's key data to next Tuesday's FOMC report. A Washington-based investment advisor was rumored to report that the "considerable period" reference could be dropped, though rates would still be kept low for some time. This helped boost bond spirits in combination with the news that the Bush Administation would drop steel tariffs while retaining a monitoring system. In anticipation of this announcement the dollar firmed, suggesting that any foreign capital flight could be arrested.
A couple large agency deals (FHLB, Freddie) priced early in the session, allowing some hedge lock unwinding before the trend higher resumed. The Mar bond closed 17/32 higher at 107-19, while the 2-year note and 30-year bond spread steepened 2 basis points to +312 basis points. U.S. swap and agency spreads tightened as the steel news helped remove some risk of protectionism from the market and reduce fear of retaliatory foreign sales in the U.S. credit markets.