MBS Live Recap: 10yr Auction Serves as Wake Up Call

Bond markets were having a decent enough day during the morning hours.  Stocks and European markets were weaker, dragging bond yields lower in a classic "risk-off" trade.  Later in the day, bonds marched to the beat of their own drummer as the 10yr auction came in much weaker than expected.

In many ways, today's 10yr auction was an acid test for broader bond market demand.  Auctions that occur during clearly-defined trends tend to offer more insight about underlying trading mentality.  We've been in a clear uptrend in yields since mid-April and today's auction was in a position to call that uptrend into question.  

Instead, the auction basically endorsed the uptrend.  The stats were weaker across the board and today's trading levels responded accordingly.  After fighting to hold onto modest gains just ahead of the auction, bonds easily slipped into negative territory afterward, closing at the highest yields in more than a month.