U.S. Treasuries closed mixed, with the yield curve flattening sharply. According to Sina Finance, futures trading volume was about 65% of its 20-day average as of 3 p.m. New York time. With no strong fundamental catalysts, trading may have been driven by investors adjusting positions ahead of this week’s coupon Treasury auctions and the Federal Reserve’s rate decision on October 28.

Short-term yields underperformed: shortly after 3 p.m. New York time, the 2-year yield was up more than 3 basis points, while long-term yields were down about 2 basis points. The 2s10s and 5s30s spreads narrowed by 3 to 4 basis points, near their session lows. Demand for bullish structures in options on 10-year Treasuries has also persisted, with investors continuing to position through call-option structures expiring in December.

The coupon auction cycle began a day earlier than usual. The $69 billion 2-year Treasury auction was somewhat weak, with the yield awarded above the when-issued trading level. Direct bidders received 41.3% of the offering, the highest share since records began in 2004. Primary dealers received 12%, slightly below the previous auction, while indirect bidders received 45.7%, the lowest share in nearly five years. Price moves were limited after the auction, and the flattening curve and underperformance of shorter-dated Treasuries largely held.

As of 4:08 p.m. U.S. Eastern Time, the 2-year Treasury yield was 4.7138%, the 5-year yield was 4.8209%, the 10-year yield was 4.9842%, and the 30-year yield was 5.2975%. The 2-year/10-year spread was 26.83 basis points, and the 5-year/30-year spread was 47.48 basis points.