Bond Market Update

Auction Reaction

• U.S. Treasuries are back near their starting levels after reversing from highs in reaction to a social media post from President Trump, in which he said that Iran shot down a U.S. military helicopter yesterday. The market already knew about an incident involving a helicopter with no casualties, but the acknowledgement from President Trump that Iran is responsible and his call for a response introduces another wrinkle into the volatile negotiations. Meanwhile, the U.S. Treasury just completed today's $58 bln 3-yr note sale to ok demand. The auction was well received when compared to the prior-12 auction averages with the bid-to-cover ratio (2.64x vs 2.63x) and indirect takedown (63.7% vs 63.1% average) coming in above average, but the high yield (4.192%) tailed the when-issued yield (4.189%) by 0.3 bps, meaning the market expected a slightly better uptake, though today's intraday volatility is likely responsible for the slight miss.
• Yield Check:
  • 2-yr: -3 bps to 4.13%
  • 3-yr: -2 bps to 4.19%
  • 5-yr: -2 bps to 4.26%
  • 10-yr: -2 bps to 4.54%
  • 30-yr: -1 bp to 5.02%