Increased supply and weakness in the dollar were too potent a combination for Treasuries and yields shot higher as a result. Given thinned market conditions due to Yom Kippur on Monday, borrowers rushed to beat the Treasury's scheduled sales of $16 billion in 5-year notes on Wednesday and $9 billion in 9-3/4 yr TIPS on Thursday.
Longer-dated Treasuries underperformed for the most part as dealers made room for the new supply. The yield on the 10-year rose nearly 9 basis points push the note up to 4.25%. Along with rate-locking, unwinding of Friday's flattening trade also added to pressure on 10-year notes and bonds, with the market continuing to correct from Friday's sell-off.
The 2-year and 10-year gap widened out almost 5 basis points through resistance at +258 basis points to set up a challenge of the August wides at +275.1 basis points. Beliefs that the Fed won't be quick to tighten, even if employment growth starts to pick up, helped contain pressures at the front end.
Meanwhile, ongoing weakness in the dollar, and no confirmed sign of Bank of Japan support, increased fears that overseas demand for Treasuries could be on the wane. Data had no impact as the Fed's report of a solid $8.2 billion rise in consumer credit was expected.