Treasuries indeed cheapened Monday in front of the three-legged $27 billion Treasury refunding. This supply overhang completely offset the benefits of the largest surge in monthly layoff announcements (205,000) reported by Challenger and fresh equity weakness on another wave of semiconductor downgrades.
There was scarcely an eyelash batted at the Challenger report, which did not remotely resemble payrolls on Friday. There was very little in the way of outright flow, bar the modest curve steepener in front of supply beginning with $11 billion of 4-3/4 year reopened notes Tuesday. The September bond closed 3/32 in the red at 102-31, rebounding ahead of 102-18/15 congestive support, while the 2s/30s spread widened to +173 basis points.
On the options front, there was reportedly a squeeze on hedgers of a large September-December spread trade on 10s put on last week, but this did not seem to alter the underlying contract prices much. The 3-month and 6-month bill auction went slightly sour, below recent bid/cover ratios, but did not keep the front-end from outperforming.
The CRB ticked higher after marking 2-1/2 year lows of 199.84.