Yesterday morning's news regarding China potentially buying fewer (or selling) US Treasuries has been a big talking point.  While most pundits and even a few traders jumped on the bandwagon right off the bat, we immediately flagged it as a Red Herring.  By the end of business yesterday, there were a few good news stories that also began to push back on the suspicious assertion.

But the best push back came from China itself, with the State Administration of  Foreign Exchange going on the record saying that the news either quoted the wrong sources or was altogether fake.  Enough of the market was conned into selling bonds based on yesterday's fake news that today's real news provided a bit of a rally opportunity overnight.  

The bigger move hit bonds in a negative way just after the European Central Bank released the minutes from its most recent policy meeting.  In not so many words, the minutes were not bond-friendly, suggesting potential adjustments in guidance in "early 2018."  This was a bigger deal for European bond markets for obvious reasons, but it still hurt US rates just before the start of the domestic session.

From there, however, US rates held their ground fairly well.  At first, it was weaker-than-expected Producer Prices that accounted for the resilience.  By the afternoon, it was clearly the stellar 30yr bond auction that set the tone.  Indeed, most of the stats for the auction were as good as they've been in years. 

This paints an increasingly clear picture of bond traders who are interested in buying longer-term debt as long as the rates are high enough.  The only uncertainty left to sort out is the extent to which the auction strength can be attributed to the covering of short positions (bets on rates moving higher) initiated in recent weeks.  At the very least, this gives us a fighting chance to see some supportive ceilings established for rates.