The sell-off in US Treasuries and steepening of the curve that has been the focus of markets this week initially extended further after I posted yesterday morning, but has since retraced. The US 10y yield reached a high of 2.595% before moving back to 2.55%. The intraday sell-off reflected press reports that (unnamed) Chinese officials had made an internal recommendation to slow or reduce purchases of US Treasuries. The move fully retraced after a solid $20bn 10y auction, which stopped inside prevailing bid levels and saw the highest coverage ratio and indirect bidding interest since mid-2016. The strength of demand is unsurprising given yields were approaching last year’s highs, speculators are short 10yrs according to surveys and leading into the auction the 10y note had been trading tight in repo.
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