While editorializing around what counted as the largest two-session selloff for benchmark US Treasurys since June of 2022 (i.e., since the Fed upsized rate hikes to 75bps), I suggested that some of the Friday-Monday cheapening might’ve been an early concession ahead of this week’s supply events.

Although a blowout jobs report, a re-acceleration in ISM services and additional Fed pushback against market speculation for imminent rate cuts was the proximate cause of the mini-rout, it was difficult to completely disentangle the price action from the looming refunding series.

Recall that Janet Yellen cut Treasury’s borrowing estimate last week and the refunding details were in-line with consensus. Between that and the guidance which accompanied the QRA (i.e., confirmation that the current round of coupon increases will be the last for a while), it was plausible to suggest that at least for everyday investors, Treasury oversupply concerns and sponsorship worries more generally were last year’s news.

But, again, there was an element of concession-building in the 30bps increase in 10-year yields across February 2 and February 5. That’s not mutually exclusive with the idea of a macro-policy-driven selloff: The data could’ve given the market an excuse to pull forward the concession into last week.

All of that to say that had this week’s refunding auctions gone poorly, the optics around lackluster reception would’ve been particularly bad given that yields moved sharply higher ahead of the sales (notwithstanding Tuesday’s rally). The oversupply narrative might’ve been rekindled, possibly to the detriment of equities.

You probably read a headline or two about Wednesday’s record 10-year auction, and implicit in the accompanying color from journalists was the notion that the sale was a big test. That’s partly true and thankfully, Treasury passed. The auction went well enough, stopping through 0.9bps, with strong indirects.

This matters. The sale came on the heels of a decent three-year auction the prior session and ahead of a long bond sale on Thursday. The figure below illustrates how equity performance has resisted a rough start for bonds in 2024.

The chart’s indexed to July 31, when supply concerns and related worries about the interplay between partisan rancor on Capitol Hill and increased borrowing initiated a sharp rise in the term premium which in turn translated into an unfriendly bear steepener that derailed stocks.

While equities have shown no signs of angst this year, it’s probably fair to suggest that if the two-session rout that began with payrolls (and extended into the new week with ISM services and Neel Kashkari’s remarks about the neutral rate) had gone much further, stocks would’ve noticed. And a clumsy refunding process might well have led to additional losses for bonds.

Writing on Wednesday afternoon, BMO’s Ian Lyngen and Vail Hartman described the solid reception for the 10-year sale as “consistent with the observation that stability with monetary policy (i.e., done hiking) and supply (i.e., auction size increases have finished) provided sufficient motivation for investors to reengage with Treasurys in the primary market.”

Of course, Thursday’s long bond sale had the potential to upend the all-clear narrative, but it was strong too, even as Treasurys nevertheless cheapened on the session. The overarching message from the relative lack of fireworks around the refunding process was that “investors are eager to move on from Treasury supply,” as Lyngen put it, quipping that the oversupply story is “so 2023.”