Disquieting economic news pushed Treasuries markedly higher on Thursday. The 10-year was +19/32 (3.061) and the 30-year was +30/32 (4.223). Yields on most government bonds fell to their lowest levels of 2011 following the announcement that Q1 GDP growth was lower than analyst expectations. Moreover, this week’s initial jobless claims report increased whereas pundits had predicted a decrease. Finally, the Treasury completed an auction sweep as the day’s 7-year T-note auction was well bid, similar to this week’s previous two auctions. Mortgages rallied dramatically on the day as MBS outperformed treasuries across the coupon stack. Lower coupons were the highest fliers as the spread on the FNCL 4.0% improved nearly 8/32.
Treasury prices have retreated some from yesterday’s heights ahead of today’s inflation reports. The 5-year is unchanged (1.734), the 10-year is -4/32 (3.074) and the 30-year is -11/32 (4.243). Both the April PCE deflator and April core PCE deflator are expected to increase, extending March’s gains. While both of these inflation measures are on the rise they remain low relative to historical standards. Elsewhere, the April pending home sales report is expected to fall, reversing a portion of March’s increase. Finally, today’s final-May U.S. consumer confidence index from the University of Michigan is expected to remain unchanged, clinging to the early-May increase. Mortgage prices are slightly lower this morning with the FN 30-year 4.0% for June settle trading at 100-23. Please note that the market closes early today so it may behoove one to complete necessary trades earlier rather than later in the day.