Yesterday traded like the Thursday of an auction week rather than a Wednesday, in that there was a noticeable sigh of relief in bond markets after the auction was done.    This can be chalked-up in large part to the presence of the gargantuan Verizon bond deal which, at the very least, added volatility to the mix so far this week. 

The 10yr auction was amazingly strong, which could be a factor of several things, not the least of which being the fact that yields were nearly 30bp higher than the last 10yr auction.  Add to that the fact that it's the last one before the FOMC Announcement, the "relaxation" of bond market tensions surrounding the double duty (Verizon Deal + TSY Auctions), and not only do we have enough justification for the strength, but also some foundation for the resistance to an additional rally.

Why resistance to an additional rally?  Because while the "double duty" may have passed, we're still in the middle of an auction cycle.  Verizon combined with the expected Treasury supply to make for a super-sized concession that was built in over a longer-than-normal amount of time.  The extra positivity in the auction stats speaks to extra short covering and perhaps even some organic demand ("yields are finally high enough for this to be a value-buying opportunity"). 

From here, it's up to data and the 30yr Auction.  Most of that happens today, but the biggest single item arrives on Friday morning in the form of Retail Sales.  If data is weak this morning (which would be important because today's Jobless Claims fall on a "survey week" for NFP), it sets off some momentum that can either be aided or thwarted by the auction result at 1pm, which in turn could be helped or hindered by tomorrow morning's Retail Sales.  The difference between all the balls bouncing our way or moving against us could translate to range of 3.10+ to nearly 2.70% for 10yr yields before next week's FOMC Announcement.