• 5yr Treasury Auction 
  • 2.652% vs 2.632% forecast
  • 2.09 bid to cover vs 2.48 average

These 2 stats tell us all we need to know about the 5yr Treasury auction.  Granted, we are in the habit of expecting difficult auctions at this time of year, but this one fell outside the range of expectations.  Is it likely a byproduct of an unexpected, illiquid rally on Christmas Eve? Almost certainly.  But are bond markets going to pout about it a little bit right now nonetheless?  Unfortunately.

10yr yields are now up nearly 5bps at 2.785% and Fannie 4.0 MBS are down more than an eighth of a point on the day.  As such, unless you're looking at rate sheets that are already noticeably weaker on the day, negative reprices are now possible.