In traditional fashion, we've seen plenty of volatility after the auction.  In case you're wondering what all this "auction fuss" is about, we're of course referring to the 7yr tsy auction, whose results were announced about an hour ago...

This is the 3rd and final day (4th if you count Monday's TIPS auction...) of this week's treasury supply offering.  It may be a bit of an oversimplification, but after Tuesday's excellent auction, each successive auction was slightly worse.  That would put yesterday's results somewhere in the neighborhood of "decent," and today's results somewhere around "slightly disappointing." 

Whereas yesterday's vanilla result ALLOWED the previous rally to extend, today's results are exerting a modicum of causality...  Immediately following the auction, bonds retreated a bit, prompting our lock alert.  But beads of sweat begin to form when tsy's turned around at 3.53 and begin to come back down.  At the same time, MBS moved off their 100-22 lows and shot to 100-31.  Was the bond market really going to make a strong enough showing to obviate the need of the previous lock alert?

Thankfully for accuracy's sake, no...  But as far as the reprices that followed fairly quickly, most of us probably aren't as thankful (unless, of course, you gut-flopped some lockage already).  And then the hidden message emerged...  It began with taking a closer look at the area of this chart marked by the red square.

By default, I set my charts to mark and move forward every minute, while still adjusting the most recent minute up or down with the hundreds of trades that hit during that minute.  In other words, the most recent point on the chart is constantly updated and accurate to the fraction of a second, but in order to maintain a linear and proportional relationship between the hours, the chart only "blots" and moves forward to the next blot once a minute.

But as you can imagine, a lot is going on during those minutes...  AQ occasionally used a tick chart, but it's not common on my end.  But today, the tick chart is extremely informative in the wake of the auction.  As you can see in the chart ABOVE, the improvements obviously ran into some problems, but the precise location of that resistance, and the way it occurred offer even more info on the situation...

I understand that might be a little tough to see...  To see the full-sized version, just click the chart.

Basically, that's grey line is what USED TO be the resistance to higher tsy yields that was in effect both on Friday afternoon as well as this AM leading up to the auction..  Zooming in to the tick by tick view allows you to see the regularity and precision with which prices encountered the resistance.  That was a pretty good indication that bonds were changing course.  And so they did, but that's largely to be expected following an auction with bad, but not so bad as to spark a sell-off.

So although we see the reversal on the chart above, it's just as likely as we'll see the same thing occur as yields move back up and MBS prices move lower.  If that occures before 3.53, we're probably looking at some iteration of a range trade into close as if to send a message to the stock market: DO SOMETHING, ANYTHING!  OR ELSE WE BONDS AREN'T DOING ANYTHING (of consequence) EITHER!