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Review $24B 20Y-Bond Auction Re-Open, Large Tail

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Tsys weaker but off midmorning lows by the closing bell. Following German Bund lead initially, sell-off in Tsys continued, 10Y futures falling through a couple levels of technical support:

  • Dec 10Y fell to new session low of 132-20.5 (-14.5), next support 132-12 -- 0.764 projection of the Aug 4/11/17 price swing. Break reinforces a bearish theme and suggests potential for a deeper sell-off. A resumption of weakness would open 132-12, a Fibonacci projection. Next support if sell-off really accelerates: 131-27+ 1.00 proj of the Aug 4 - 11 - 17 price swing.
  • Moderate volumes, TYZ>1.29M, position adjustments ahead next week's FOMC (dealers talking up November taper announcement), tight stops triggered, option and incoming Tsy supply selling added to move.
  • Eurodollar highlight: >+50,000 EDZ4 (Blue Dec'24) 98.535 helped future lead volume across the strip at just over 200k (adds to Wed's +40,000 EDZ4 from 98.61 to .615).
  • Likely unwinding short leg of over 50,000 Green/Blue Dec spds bought/blocked on June 22 at .435 (smaller around .385 this week). Additional EDZ'4 associated spds include EDZ2/EDZ4 bought in good size at 1.185 around the June FOMC -- a recommendation by Morgan Stanley trading desks say, that collapsed to around 1.050 (an re-recommended as a buy).
  • Large 10Y options flows ahead next week's October option expiration noted.
  • By the close the 2-Yr yield is up 0.4bps at 0.2237%, 5-Yr is up 2.4bps at 0.8648%, 10-Yr is up 3.1bps at 1.3684%, and 30-Yr is up 2.5bps at 1.9084%.