Today’s bond trading was largely a story of the 3yr Treasury auction vs the 10yr Treasury auction. Both of these are used to encountering each other on the same week, but not usually on the same day. In fact the “3, 10, 30” auction cycle seen this week typically happens on “T, W, and Th” respectively. The calendar is condensed this week due to the Fed Announcement on Wednesday afternoon.
Bonds were slightly weaker in the overnight session, but yields were doing a good job holding underneath Friday’s higher levels. The 3yr auction shook things up. This is notable in itself because broader bond markets usually don’t respond to 2 or 3yr auctions much at all. This time was different–possibly because it was the strongest auction in nearly 2 years or possibly because investors were looking for any clues they could get regarding other investors’ mindsets heading into the more relevant events in the middle of the week.
The strong 3yr auction helped bonds move into positive territory on the day. There they waited to see if the 10yr auction would convey a similar sense of strength or if it would do more to moderate the positive tone. While the 10yr results weren’t “weak,” by any means, they stopped very well short of confirming the same sort of fervor conveyed by the 3yr auction. Bonds moved right back in line with morning levels (slightly weaker on the day) and that was that.