Even though stocks and the Euro are trading lower, bond markets have been stubborn this morning in maintaining slightly weaker levels. Given the impending 7yr Auction at 1pm, and observing the disconnection between Stocks/Euro and Treasuries, we’d hope that this extra tinge of bond market weakness is as simple as an auction concession.
7yr Notes have averaged a 2.89 bid-to-cover and saw a historically strong 3.20 in November’s auction. Due to timing of auctions and rallies, 7’s haven’t lined up with some of the super aggressive Treasury rallies over the past few months and thus today’s auction will be neck and neck with November’s as to the lowest yielding on record. On a 2-week period with 6 note auctions, the motivation to snap up 7’s at record low yields could be limited. This is probably what Treasuries have priced-in, so if the auction is decent, we’d expect 1.94 to hold supportively in 10’s.