The Day Ahead: 3yr Treasury Auction and More Waiting on Fed Minutes

Monday's session was certainly lacking in conviction.   Volumes were out of line with historical examples of post-NFP Mondays (especially after a big move), market participants were still clearly absent, and other market participants were left to trade rather mechanically back from the abyss that was Friday's lows (or highs as the case may be for Treasury yields).  MBS did manage to gain a point in price, but had lost more than 2 on Friday alone (and many more in the 2 months before that).  All told, it was the least enjoyable example of a 1pt rally in MBS prices in a long time.

Treasuries aren't much happier:

Treasuries didn't fare any better (in fact, worse).  But relative performance is less of burning analytical necessity while we're just waiting for thin tradeflows to run their course ahead of the week's only real dose of information on Wednesday afternoon in the form of FOMC Minutes.  Even then, how can the minutes of the June 18/19 meeting do more damage than the Announcement that followed it? 

That seems like a very logical question, and indeed it's possible, but after movement like we've just witnessed--and considering the movement was Fed inspired--any official communication from the Fed has full market moving potential.  Even if it doesn't live up to that potential, markets will be tuned in.  To whatever extent bond markets aren't busy covering shorts or attending to other tradeflow considerations, the 3yr Auction at 1pm is a more interesting event than any we had yesterday.  It still may not be the market mover it once was, but as the Fed is now seen as standing a chance of raising rates inside 3 years, it is at least showing signs of life again.  No major implication for MBS here, but maybe something to watch in the afternoon.