A surprise boost in supply from the Treasury's refunding announcement combined with a "sell the fact" trade after Secretary of State Powell's U.N. address took a heavy toll on Treasuries Wednesday. A post-speech rally in stocks also weighed on bonds, and the long end closed over a point lower on the day. However, as has been the case all week, it was the 5s and 10s which underperformed after the threat of supply exceed market expectations. Though the Treasury announced an as-expected $42 billion refunding package, it was the news that debt managers were doubling the issuance of 5s (going from 4 to 8) and re-introducing the 3-year notes that hurt. The yield on the 5-year note rose over 10 basis points to just shy of 3% on the news, while the yield on the 10s rose over 8 basis points through the 4.0% mark.
Treasuries didn't sell off immediately on the supply. Instead sellers hesitated ahead of Powell's speech. But once there were no major surprises and no smoking guns, stock prices started to climb, and weak longs in Treasuries bailed out. The Dow climbed over 100 points before the 8150 area encouraged profit taking. The late-afternoon dive to a closing price of 7991 was of little help to bonds, though.