Bond Market Update

Auction Reaction

• U.S. Treasuries have risen from their morning lows, but most tenors remain in negative territory with longer tenors showing relative weakness. Treasuries added to their starting losses during the initial hour of action, briefly pushing yields on 10s and 30s to levels not seen since early 2002. The early slide was followed by a quick bounce that lifted Treasuries back above their starting levels, but the bounce ran out of steam once the 2-yr note approached its unchanged level. The bounce off lows coincided with a pullback in the price of oil, but it also had to contend with the latest Survey of Consumer Expectations from the New York Fed, which showed an uptick in year-ahead inflation expectations to 3.9% from 3.6% while the three-year outlook rose to 3.3% from 3.2%. The five-year outlook remained at 3.0%.
• The entire complex received a solid lift in recent trade, right after the U.S. Treasury followed yesterday's ok 3-yr note sale with an excellent 10-yr note reopening. Today's auction drew a high yield of 5.300%, which stopped through the when-issued yield by nearly two basis points while the bid-to-cover ratio (2.77x vs 2.51x average) and indirect takedown (80.3% vs 70.3% average) were well above average.
• Yield Check:
  • 2-yr: -1 bp to 4.78%
  • 3-yr: UNCH at 4.92%
  • 5-yr: UNCH at 5.03%
  • 10-yr: +2 bps to 5.29%
  • 30-yr: +3 bps to 5.67%