After starting off in a positive frame of mind, despite a healthy pre-market rally in stocks, investors folded up stale long positions in thinning market conditions. This exaggerated the fall, when locals strong-armed prices lower and tripped sell-stops on the way down to session lows. Options flows in the 10-year were also mostly bearish early in the day and provided early clues to the underlying fragility, for those vigilant for the signs.
There was some early selling of 2-year notes as well, which may have been elbowed by the launch of the jumbo $4 billion Freddie Mac 2-year global reference notes due to price Tuesday. The September bond closed 1-8/32 lower at 114-23, while the 2-year note and 30-year bond spread steepened 3 basis points to fresh 11-year wides of +343 basis points as reflation bets gathered fresh momentum.