2 Year Note Results Goosed the Market

As I said in the last post, I'm going to keep an eye out for distribution in to higher prices. It's obvious this morning's sellers' shares were accumulated by the flying 5-10 min intraday divergences. Remember retail sentiment flipped from Buy the Dip Friday to fear yesterday so whatever they sold and there was some volume on the decline this morning as some of those last ditch support areas were tickled and a nice gap was given up, was picked up on the cheap.

The thing about retail is they love to chase. Going in to tomorrow's F_O_M_C, one might take today's 2 year auction as an indication that some heavy hitters like foreign central banks have an inside line on what the F_E_D is going to do and that the perception may have been that a hike is further off than currently expected by broad consensus.

Did you see the market around 1 pm?

The intraday NYSE TICK shows the market going from getting a bit tired to a parabolic pop higher (see ES below)...

ES 1 min-see the area in white.

The 2 year Treasury auction concluded with the highest indirect bidder take down since June of 2009. Typically these entities are foreign concerns, foreign central banks. In any case, the indirect take down at a 6 year high was 54.37%, but that's not all.

Remember the "Staff leak" from the F_E_D with projections of where the F_E_D Funds rate would be at the end of 2016? It was +1.26%. Remember this was a 2 year Treasury auction today and it came in at a yield of +.69% even though the F_E_D Funds rate is forecast to be nearly double that by the end of 2016 while this issue is still active.

I'm not a bond guru and there are a lot of reasons foreign central banks may want our paper, but from a tinfoil hat perspective, some may have the perception that the takedown was so high at such a low yield because the F_E_D isn't ready for lift-off (Oh, that's the first and last time I say that!) at the September meeting, thus the market reaction at the same time.

As I said, I'm not a bond expert, but there are a lot of reasons foreign central banks/entities might be interested in US paper right now. Or... perhaps the tin foil hat theory holds water.