Operation Bond Drive

Were the 5-year auction results reflective of poor demand? I’ve seen 2.61 bid-to-cover ratios spun as bullish. The auction results showed increased and decreased participation from primary dealers and direct bidders, respectively. This is a mildly bullish short term observation. This piece of information was ignored because price action makes better commentary.

5-Year Auction Results


What the incentive for negative price action? Negative price action provides churn (volume) or cover necessary to setup (control) the market. Operation bond drive represents accumulation by connected money in the bond market as specs and retail becomes increasing emboldened by the media-hyped price break.

Price action is leading the herd into a narrow, controlled pass that hides cliff around the bend.

Connected money is repositioning on the long side in 2-, 5-, 10-year, and long bond. This clustering of money movement, illustrated below, suggest accumulation within an operation of size and possibility of short-term price "teeth".

COT Money Flow Table:


Headline: Treasurys Sink After Poor 5-Year Auction
Treasury prices sank Tuesday after lukewarm demand on a $35 billion sale in five-year notes.

The bond market extended its losses after the auction, pushing prices to fresh session lows, as the result raised concern about the outlook for Wednesday's scheduled sale of seven-year notes.

Higher yields failed to lure enough buyers to underwrite the auction, a sharp contrast to the two-year notes sale Monday.

online.wsj.com