Shorter-dated instruments underperformed initially, but the advent of more corporate issuance, on top of an already heavy Treasury calendar, put increased pressure on the belly. Note that Treasury supply totals $84 billion this week and potentially another $83 billion next week, including 5-year notes and 10-year notes. However, as the 5-year note topped out just shy of 3.50% and the 10-year note near 4.45%, selling eventually petered out, giving the market a chance to recover.
Unwinding of some of the curve flattening plays also aided the turnaround. The short end paced the gains and the 2-year note and 30-year bond spread edged back out a few basis points to +308 basis points. The Treasury's cash management bill sale saw strong demand with over $97 billion in bids for the $32 billion in 12-day paper.