For the second day in a row, bond buyers shunned an auction of Treasuries.
Yesterday's tail in the 10-year sale was the largest since 2010. Today, a sale of 7-year yields was at 3.280% compared to 3.259% -- a 2.1 bps tail.
At various times in this cycle, those kinds of misses would have reverberated into punishing selloffs in bonds (higher yields) and spilled over into equity markets. This time, yields have mostly retraced the moves and the follow-through across the curve is minimal.
Why?
Bond market strategists are looking east for reasons. The indirect bid at auction was particularly now and eyes are on Japan. The yen is near a 24-year now and hedging costs for Japanese investors are high, due to the volatility in the yen.
Some of that is due to quarter end but it's a factor worth watching in the month ahead.
What could happen here is a negative feedback loop for bonds. As USD/JPY rises, Japanese investors could pullback further and that will push yields higher. With that, there will be more upward pressure on USD/JPY.
What Japanese investors may be worried about is the BOJ pulling the rug out of yield-curve control. That would cause rapid appreciation in the yen and wipe out any spread change in a heartbeat.
The bottom line is that central bank policies are skewing the market and still making it tough to get a clean read from the bond market.