Initial reaction by bonds was swiftly downwards, with both futures and cash losing over a point in the wake of the data. Supply and alleged front-running of a potential convexity liquidation also featured as a talking points for the declines as 10-year yields made a stab at 4.50% and the 5-year eyeballed 3.50%.
The Treasury will crank out $84 billion in bills this week and will likely announce a $31 billion total of 5-year notes and 10-year notes next week. This may partly explain the underperformance in the belly of the curve and elevation of volume in the area. There were also reports of a mortgage servicer liquidating a large short position of 105 puts on March 10-year notes -- effectively unwinding a bullish hedge. At midday stocks had a hiccup on news of a shooting at the U.N., but recovered into the close. The March bond closed down 15/32 at 107-12, but above lows of 106-16.