It goes like this, the fourth, the fifth
The minor fall, the major lift…

Hallelujah. Or, more aptly given the rather pressing circumstances, Halle-fuckin’-lujah.

Wednesday’s closely-watched, $39 billion 10-year reopening saw strong demand, with a 1.8bps tail and a bid-to-cover of 2.77, the highest in a decade.

It’s only barely an exaggeration to describe the midweek supply event as “make or break” during a session when 10s were 5.37% at their cheapest intraday levels.

If you didn’t know any better, you might’ve been inclined to suggest the 10-year sale was bound to attract enthusiastic bidders given the enormity of the concession inherent in a — checks notes — ~55bps increase (!) in benchmark US yields versus last month’s auction stop.

But that’s just the thing: The ferocity of selloff, which has a distinct “Where she stops, nobody knows” air to it, could’ve just as easily undercut demand. “Who wants to catch this falling knife?” isn’t the best pitch, after all.

Mercifully, the appeal of the highest at-auction yields for any 10-year sale in a quarter century was enough to carry the day. Non-dealer bidding was 97.5%, well above the recent average for reopenings.

As the figure shows, dealers were left with just 2.5% of the sale, the least since… hell, I don’t know. The least in a very, very long time.

This is by no means any sort of “out of the woods” moment, but the price action on the follow-through was telling: 10-year yields were as low as 5.27%, 10bps richer versus the intraday highs.

To reiterate the point made above, this could’ve gone outright poorly. As BMO’s Vail Hartman noted just prior to the sale, “since the beginning of 2021, 10-year auctions have tailed in all eleven instances when the clearing yield was more than 30bps above the preceding 10-year auction.”

That’s an interesting stat, and it’s indicative of the jitters that accompany escalatory rate-rise. As Hartman put it in the same auction preview, “the speed and magnitude of the recent bond selloff” had the potential to “undermine bidding conviction, if not serve to keep some otherwise would-be buyers sidelined.”

Seen in that light, Wednesday’s supply event went over quite well. The next test is Thursday’s $22 billion long bond reopening.

Meanwhile, the September FOMC minutes, which were arguably rendered too stale to matter by last week’s lackluster US jobs report and subsequent remarks from John Williams and Philip Jefferson who all but said the Fed doesn’t intend to raise rates again later this month, showed “most” policymakers favored another rate hike by year-end.

Financial conditions, “several” officials reckoned during last month’s policy deliberations, were “not restrictive or only mildly restrictive,” what with “equity prices having risen substantially and spreads on corporate bonds having remained narrow.”