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Bonds trended steadily higher and finished strongly despite equities’ recovery into the close. The 30yr added 13 ticks and again breached the 118 mark. The 10yr was up 11 ticks to 116-20. Today’s range completely encompassed yesterday’s, and resistance at 116 held for a third straight day.

Meanwhile, the 2yr added 5 ticks to 106-18. The 2yr-10yr spread has widened to 155bps, from about 146bps last week.

On the short end, the 3-month bill was very well bid, its yield dropping 10bps to 1.69%. The 4wk bill yield was down 7bps to 1.74% and the 6-month and 1yr yields fell 6bps each, to 1.90% and 2.04%, respectively.

Bonds are well-bid across the curve, though worries over the GSEs appear to have dissipated somewhat into the slow lunch hour.

The 30yr future is up 16 ticks to just over the 118 mark. The 10yr is up 12 to 116-21, and the 2yr is up 4 ticks at 106-17.

The short end has seen plenty of buying as well, with the 4wk bill yield down 6bps to 1.75%, the 3-month yield down 8bps to 1.71%, and the 6-month yield down 6bps at 1.90%. The 1yr bill has been bid up to yield 2.04%

With no economic data with which to work, the bond market continues to be guided by banking sector fears and the uncertain future of GSE’s Freddie and Fannie. The US Treasury’s standoff approach to the matter has done little to alight fears as the bond market has kept a strong bid tone while shares of Freddie and Fannie have each dropped more than 30% so far this week. Yesterday, Freddie’s 5yr note auction was awarded at an alarming 113 bps over treasuries which indicates a concerning need for liquidity.

The 10yr, up 0.2% to 116-16, is trading in the upper portion of today’s range and is in lien with the coincident range from the first half of April. The 30yr, up 0.35% to 117-31, continues to show consolidation under 118.

Bond yields are lower across the board with the 30yr down 2bps to 4.43%, the 10yr yield down 2bps to 3.8% and the 2yr down 1bp to 2.28%. The short end of the curve is also higher, with the 4week bill yield down 2bps to 1.76%, the 3month bill yield down 5bps to 1.715 and the 6month bill yield down 3bps to 1.88%.

European Fixed Income Midday: European debt futures are mixed have given up most of this morning’s losses, with Gilt futures outperforming on BoE Minutes, which was in line with the August Inflation Report, suggesting that the central bank has opened the door for a rate cut next year.

The September 10-year Bund future is down 1 tick at 114.32 and the corresponding Gilt future is up 10 ticks at 109.19. In the cash market the 10-year Bund yield is flat at 4.17% and the Gilt yield is down 2 bp at 4.58%. Stock markets are firmer (DAX 0.50% and the FTSE 100 0.84%, as of 09:55GMT).

Gilt futures opened lower, in line with Bunds, while stock markets recorded gains. Today’s focus is on the August 6-7 BoE Minutes, which are widely expected to show another split 1-7-1 vote, with Besley arguing for a hike while ultra-dove Blanchflower should continue to favour a rate cut. We expect the minutes to underpin an outlook for steady rates ahead, with fears of dislodging inflation expectation deterring the MPC from cutting rates. The September 10-year Gilt future is down 15 ticks to 108.94. The 2-year Gilt yiled is up 3 bp to 4.58% and the 10-year yield is up 2 bp to 4.61%. FTSE 100 opened 0.6% higher, while DAX was up 0.5% and CAC 40 rose 0.6%

European Fixed Income Outlook: European debt futures are likely to open with a negative bias, in line with overnight Treasuries, continuing the downward correction started yesterday afternoon. The local calendar has a U.K. focus with the August 6-7 BoE Minutes on top of the agenda. We expect the August minutes to show yet another split 1-7-1 vote, with Besley arguing for a hike (although yesterday’s comments from Besley could indicate a steady hand vote), while ultra-dove Blanchflower should continue to favour a rate cut. We expect the minutes to underpin an outlook for steady rates ahead, with fears of dislodging inflation expectation deterring the MPC from cutting rates. On the U.K. data slate, July public sector finances, M4 money growth and August CBI manufacturing orders.

Bonds closed well off their lows in a choppy trading day that saw equity indices lose more than 1% and the dollar retrace some of its recent hot streak.

The 30yr future closed down 10 ticks at 117-19 while its medium and long-term moving averages converged under price at 115-21. The 10yr behaved similarly but was down only 2 ticks at the day’s end, at 116-10.

On the short end, bills were mixed. The 4wk yield rose 3bps to 1.73%. The 3-month was flat at 1.79%. The 6-month bill yield fell 8bps to 1.92%, while the 1yr yield dropped 2bps to 2.10%.

The bond market continues to face selling pressure this afternoon following a choppy morning session which included higher-than-expected July PPI and slightly better-than-expected July Housing Starts. Freddie and Fannie jitters are likely to keep the bond market on edge, especially after Freddie’s $3bln 5yr auction today that yielded 113bps over Treasuries — the highest spread in over 10 years thanks to a considerable reduction in demand from central banks and Asian investors.

The 10yr, down 0.15% to 116-07, is trading near session lows but remains well within its upward trend starting July 23. The 30yr, down 0.35% 117-16, is performing similar to the 10yr with the 21- and 200-day moving averages at convergence under price at 115-21.

The yield on the 3oyr is up 3bps to 4.47%, the 10yr yield is up 2bps to 3.84%, and the 2yr yield is marginally lower at 2.32%. The short end of the curve is mixed with the 4week bill yield up 3bps to 1.73% and the 6month bill yield down 8bps to 1.92%.