Treasuries booked gains this week as traders moved into the complex amid the weakness in equities. Mixed economic data and record foreign outflows from Treasuries ($54.5 bln in April) were unable to deter the bulls as buyers took control following six weeks of selling. Better than expected retail sales (0.6% actual v. 0.3% expected) and a hotter than anticipated PPI (0.5% actual v. 0.1% expected) kept some Fed tapering fears in the marketplace ahead of next Wednesday's FOMC decision, but weak industrial production (0.0% actual v. 0.1% expected) and Michigan Sentiment (82.7 actual v. 83.0 expected) data pushed back against those concerns. Traders also had to grapple with Friday's IMF paper, which downgraded 2014 U.S. growth to 2.7% (3.0% previous).

This week's gains provided the most benefit to the belly of the curve as yields there fell as much as 7 bps. After hitting a 14-month high of 1.182% on Tuesday, the 5-yr yield ended the week at 1.021%. Interestingly, the maturities that saw funding this week were the worst performers in terms of yield as the 3-, 10-, 30-yr slipped just a couple of bps. The benchmark 10-yr yield ended the week off 3 bps at 2.126% to post its lowest close in a week.

Little change occurred along the yield curve as the 2-10-yr spread narrowed slightly to 185.5 bps.

Tuesday's disappointing $32 bln 3-yr note auction drew 0.581% and a soft 2.95x bid/cover (lowest since October 2010) as indirect bids (30.7%) were strong while direct bids (8.4%) were weak. Primary dealers ended up with a whopping 60.9% of the supply. Wednesday's average $21 bln 10-yr reopening drew 2.209% and weak 2.53x bid/cover (12-auction average 2.92x) as indirects took down 51.7% of the supply (highest since December 2011) while directs bought just 11.7% of the offering. Primary dealers ended up with 36.6% of the reopening. Thursday's disappointing $13 bln 30-yr bond reopening drew 3.355%, the highest since August 2011, and a weak 2.47x bid/cover (12-auction average 2.58x). A strong indirect bid (40.2%) was off offset by weak demand from directs (8.5%), leaving primary dealers with 51.3% of the supply.

The Week Ahead

Data flow begins on Monday with Empire Manufacturing (8:30) and the NAHB Housing Market Index (10).

Tuesday will see CPI, core CPI, housing starts, and building permits (8:30).

Wednesday's data is limited to the weekly MBA Mortgage Index (7:30) with the main event being the FOMC rate decision, release of economic projections (14), and Fed Chairman Ben Bernanke's press conference (14:30).

Thursday's data menu is full with initial and continuing claims (8:30), existing home sales, the Philadelphia Fed, and leading indicators (10).

There is no data on Friday.