The last potentially notable event on today’s calendar is the 7yr Treasury Auction coming up at 11:30am. 7yr auctions aren’t typically something markets care much about, and today’s is only really worth mentioning on a relative basis–that is to say, ‘relative’ to the barren wasteland that is the Christmas week trading environment. In such an environment, Treasury auctions are one of the few things that FORCE a certain pre-determined amount of bond market volume to be transacted.
That’s why yesterday’s 5yr auction caused as much of a stir as it did. It exposed a fragility in the thin conditions. Even after a significantly weaker morning, the yields still weren’t high enough to attract more than 2.39 dollars bid for each dollar auctioned–right in line with multi-year lows. Considering 7yr auctions are even more challenging for market participants (not a big market for 7s), the safest play was to sell, sell, sell.
At least today’s selling has been more moderate by comparison. Fannie 3.5s are down only 2 ticks at 103-20. 10yr yields, unfortunately just cracked 2.30. Refer to this morning’s Day Ahead for thoughts and analysis on that broader weakness.