Data was largely shrugged off, including trade prices, inventories and consumer credit. Otherwise the build-up to the record $18 bln 10-year auction proved to be a bust after the auction went extremely poorly amid low demand (lowest bid/cover since 1978). After the overnight equity rally flamed out, Treasuries surged initially, but then wilted into the auction announcement, before reviving once more into the close despite a late surge on Wall Street.
The September bond closed 22/32 higher at 107-17, but ran into a wall at 108. The two-year note and 30-year bond spread widened out six basis points to +324 basis points, helped by the dogged strength of short maturities.
Front-end gains were led by a buyer of 15,000 December euro$ futures on the Fed cut rumor, while the long-end lagged on the auction results. Fed fund futures priced in 68% risk of a cut by September.