[ForexNews]

Sentiment is a fickle thing. Following a well-participated auction of 3Y US Treasury (UST) notes on Tuesday – with the bid/cover ratio printing a high for the year for this tenor – the reception accorded Wednesday’s 10Y note offering was comparably lukewarm. Specifically, the USD 23bn of securities on offer cleared at a yield of 3.734%, which was notably higher than the 3.708% anticipated by traders (Bloomberg survey). Moreover, the bid/cover ratio, at 2.49x, was significantly lower than the 3.28x at the last sale of similar securities last month and the lowest since early-May. Indirect bidder participation (a group including foreign central banks) took down 45.7% of the issue (43.9% at prior auction).

However, despite the mild disappointment of the developments on the Fed’s buyback programme announced following the FOMC, the UST curve was slightly higher, with a modest steepening bias. The wildcard will now be today’s final leg of the three-part auction – namely the sale of USD 15bn of 30Y bonds where indirect bidder participation could be a significant swing factor.

In the FX market, the DXY index had a ‘bearish engulfing day’ on the candle charts in the wake of the FOMC statement as investors pared back Fed rate hike expectations once more. Fundamentally, the US money market was pricing in a total of +130bps of Fed rate hikes over the next 12 months as of Monday. This has now been reduced to +104bps – and some expect it to be further reduced in the next few days and weeks.