Markets continue to show their ever-waning level of interest in the shorter duration Treasury auctions as today’s lackluster 5yr issuance has failed to spook any sort of sell-off. In fact, if anything, we’re seeing some slow and steady determination on the part of MBS and longer-dated Treasuries to hold supportive levels and remain at least sideways heading into the FOMC Announcement.
As for the auction itself, the stopping yield was reasonably close to expectations, but slightly higher. Demand was weaker-than-average with a Bid-To-Cover of 2.73.
The first reaction amounted to a brief hiccup to the weak side for both MBS and Treasuries, but at this point, it’s indistinguishable from the rest of today’s price action and bond markets have actually strengthened a bit in the first 15 minutes following the auction.
For MBS, this eases previously growing risks of negative reprices and for bond markets in general, serves to keep us more sideways and range-bound heading into FOMC at 2:15pm. It’s not out of the realm of possibility for MBS to break higher before then, but it would have to be a convincing break to prompt positive reprices from more than 1 or 2 lenders.