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Strong 10yr Auction, But Bond Markets Stay Contained
Posted to: Micro News
Wednesday, December 12, 2012 11:59 AM

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As expected, the 10yr Treasury auction didn't pack its traditional level of market-moving punch with the relatively much more important FOMC events looming in the near future. The auction results provided a good opportunity to confirm that. Reason being: the auction was strong, with only slightly below average bid-to-cover, but strong direct bidding and a substantially lower-than-expected yield. Under normal circumstances, such results would have resulted in a more marked shift into rally mode for 10's.

And while we have definitely seen a reaction in 10yr yields, it's better characterized as "contained" instead of "rally mode." 10's had been moving slightly higher this morning, building in a concession for the auction and any unpalatable eventualities from the FOMC Statement. Bottom line, the auction was palatable, and just we've simply gotten an adjustment to slightly lower yields, but no follow through rally. Pretty scripted movement.

The translation for MBS has been positive but also contained with Fannie 3.0s simply returning to their previous range of the morning after following 10's lower for the pre-auction concession--now back to 104-30, 1 tick higher on the day.




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