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Treasuries opened unchanged as the Street braced for employment data. Eurodollars saw large curve flattening trades just ahead of the report. The 248,000 rise in May nonfarm payrolls was on consensus. The surprise was the upward revisions to both April and March, so Treasury prices fell, as the payrolls report ensures the Fed will raise rates at least 25 basis points on June 30 and possibly more at their August meeting.
Still, the Street was positioned for a strong report (large shorts), so the slip in prices was shallow. The knee-jerk reaction was helped by fresh curve flatteners. The higher prices out the curve triggered buying. But once the shorts covered, the market lacked follow-through to the upside. Prices fell back by midmorning on option-related hedging, as option volatility tanked. Prices moved lower in the afternoon.