MBS Live Recap: Bonds Still Struggling to Break Recent Floors

The chart in this morning's Day Ahead showed consolidation patterns (lower highs and higher lows) in both German Bunds and US Treasuries.  For the latter, the consolidation pattern remains intact after an attempted breakout today.  In other words, yields tried to move below the lower line but were unable to do so.

The setup for this attempted rally had to do with a series of events this morning.  It began with the ADP Employment data, which was fairly tepid, but positively revised in the previous month by more than 30k.  This was enough to cause modest selling pressure for bonds, but essentially no volume.  That let us know traders were likely waiting for the 8:30am Treasury Refunding announcement (an update on Treasury auction amounts for the coming fiscal quarter).

Amounts were left unchanged, and there was no specific mention of 50yr bonds (something Mnuchin has said Treasury is looking into).  Traders may have taken some heart in the fact that auction amounts didn't increase, but Treasury's press release said that things would likely change after the Fed begins trimming its balance sheet.  Yields began climbing after a brief initial rally.  

Once 10yr yields hit 2.28%, a big buying order came through the Treasury futures complex.  One minute later, buyer loaded up on nearly 9 times as many bonds, sending yields decisively lower and setting the tone for the rest of the morning.  Bonds stopped short of breaking their consolidation range, however, and ended up slowly drifting back up toward the 2.28% level by the end of the business day.