Bonds Tumble Ahead of Supply and FOMC Minutes- 10-Year 1.79%

U.S. Treasuries fell on Wednesday morning to trade the highest yields/lowest price levels since early June with the 10-year leading lower. The market was up against a run of Treasury supply while new issues are also being added to the calendar. The Sept. 21 Federal Open Market Committee (FOMC) meeting minutes sit at the end of the session and will be parsed for rate-hike timing hints and for thoughts of the three dissenters who advocated for a hike.

The long bond took out the 200-day moving average for the first time since the start of the year while the 10-year continues to confront the 1.80% level. The 30-year recently traded near 2.522% from a low at 2.5285% and a 2.495% close Tuesday. The 10-year is near 1.79% from a low just through 1.80% and a 1.76% close. The five-year recently traded near 1.315% from a 1.3305% low and 1.295% Tuesday. The two-year is near 0.87% from a 0.8988% low and a 0.865% close.

The curve trade is mixed, leaning toward a steeper slope early with the yield differential between the two- and 10-years just over 90 from a close near 89, while the the five- and 30-year yield spread is holding little changed near 1.20.

Treasury will auction the $24 billion three-year notes at 11:30 a.m. ET and $20 billion reopened 10-years at 1 p.m. Participants note the sales may be “sketchy” as they hit in front of the FOMC minutes release at 2 p.m. The previous auctions were subpar, but there is cautious optimism that the recent sell-off (concession) will spark interest and foreign players will continue to support the sales in the relative low-to-negative yield environment.

The Sept. 12th three-year auction saw buyers accept a lower yield, stopping through at 0.947% versus 0.950% at the bid deadline and from 0.850% in August. The overall demand bid-to-cover ratio was 2.77 versus the previous 2.98 and an average 2.90. Indirect bidders, the proxy for official foreign interests, took 54.8%, also below August’s 56.9%, though it’s a little above the 50.4% average. Direct bidders took only 4.7%, the worst since December 2009.

The September 10-year note sale tailed with buyers demanding a higher yield, awarded at 1.699% versus 1.690% at the bid deadline and from the prior 1.503%. Bidders ponied-up $2.35 cover for each $1 on offer versus $2.43 and an average $2.60. Indirect bidders got 62.1%, below August’s 72.2% and the 63.8% average. Direct bidders took just 3.4%, the lowest since February 2011.

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