A glacial corrective drift higher Monday helped Treasuries recover some of their lost territory from payrolls, but the Yom Kippur holiday sapped trading volumes and the upmove was not overly convincing. Data and events were not to be had and this left the market up to its technical devices. With Fedspeak and supply in the pipeline, in lieu of data, Treasuries attempted to find their compass in a day that was otherwise a write-off.
The Treasury announced the auction of $16 billion in 5-year notes (Wednesday) and another $9 billion in 9-3/4-year TIPS (Thursday). There was little in the way of corporate issuance and swap spreads tightened up somewhat. With outright business scarce, the standout trades were on the options side. One broker reportedly bought 114 calls on March 10-year notes, likely on behalf of a mortgage servicer. Another shop sold 5,000 114 calls on December 10-year notes against a purchase of 5,000 112+ calls on December 5-year notes.
Stocks only marginally extended their bid from Friday, while the dollar's reprieve ended with another sharp selloff. The December bond managed to close up 22/32 at 109-18, while the 2-year note and 30-year bond spread finished where it began, at +347 basis points. Fed fund futures still suggested only 20% probability of a rate hike before the end of the first quarter.