Modest selling pressure turned into a rout for treasuries on Tuesday, as stronger than expected data, a souring Fed outlook, technicals, and a rebound in stocks conspired to send bonds sharply lower. Shorter dated issues underperformed on the day, hurt by the ever-changing FOMC outlook. Though bonds opened little changed, and Fed funds futures showed about 54% risk for a 50-basis-point easing Wednesday, unexpected strength in durable goods, consumer confidence, and home sales were the catalyst for bears. Dealers selling was noted across the curve, particularly in Fed funds futures, and in 5s and 10s early on. Reportedly much of the selling in the 5s and 10s was for a large fund, with other accounts piggy-backing onto the move.
The break of the 200-day moving average on the September bond at 101-23 triggered some black box selling into the afternoon. The turnaround in stocks after heavy morning losses also helped knock nearly a point off the 30-year bond.
Meanwhile, as better than 50-50 expectations for a 50-basis point cut dwindled to around 36%, the 2s came under heavy pressure, with the yield pushed back over 4%.