Bond Brief: Rally Hits Snow Storm

Early in the morning, government bonds rallied on comments from Kansas City Federal President Thomas Hoenig. "We're very close to where we need to be," referring to achieving a neutral interest rate level, he said Tuesday evening before a group of local business leaders in Kansas City. However, Hoenig also said that a pickup in growth would complicate the Fed's decision making process.

Hoenig's remarks imply that the Fed is "thinking of the endgame near 5%," says David Ader, U.S. government bond strategist at RBS Greenwich Capital. "[The market] got another Fed-related bid."

But even though there has been evidence that the payroll number on Friday could surprise to the downside, Ader says there is growing optimism that yield could dip because of more dovish rhetoric from Hoenig, the re-emergence of longer-term buyers and oversold market conditions.

But Klingman says the market is being a bit too optimistic about the Hoenig's comments. "We've seen comments from others that do not imply that the Fed is about to stop. Most importantly, the most recent Fed statement does not say that the end is near," he says.

Hoenig is not a member of the policy-setting Federal Open Market Committee. Interest-rate futures show 100% odds that the FOMC will raise rates to 5% at its next meeting on May 10, and 30% odds for a hike to 5.25% in June.

In corporate bonds Wednesday, Viacom(VIA.B Quote) sold $4.75 billion in notes and AutoNation(AN Quote) sold $600 million in paper.