Tuesday's budget deal in Washington was greeted as a negative, despite the fact that it means that congressional brinksmanship will not threaten to shut down the government for two more years.
"Apparently everybody's still talking about [Congress] making it easier for [the Fed] to start tapering early because of the deal," said Art Cashin, director of floor operations at UBS.
The 10-year yield could also be a factor for stocks, he added, but it did not really start to move to its afternoon highs until well after the auction. It was trading at 2.84 percent late Wednesday.
The $21 billion in reopened 10-year notes was priced to yield 2.824 percent, compared with its yield of 2.817 when issued and November's auction yield of 2.75 percent. The bid-to-cover ratio was 2.61 times compared with 2.7 times in November and below the six-auction average of 2.75 times. The participation rate of direct bidders fell to 10.6 percent from 18.6 percent in November.
"The 10-year auction was lousy. It needed a flea collar," Cashin said, adding that if the 10-year yield gets too close to 2.9 percent it will be a negative for stocks. He does not expect the Fed to move next week, but it could discuss winding down the QE program in its statement.
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"Direct participation was on the weak side, which I think creates some risk for tomorrow's bond auction," Simons said. "If [bidders] are here, they're here for 3s, 10s and bonds. So far, participation in the auctions this week has not been great."
The action in Wednesday's 10-year auction showed a lack of interest, Simons said, not necessarily a view that the Fed would move to taper its bond purchases. The Treasury auctions $13 billion in 30-year bonds at 1 p.m Thursday.
Steve Massocca at Wedbush Securities said he think the stock market has been selling off because investors are sitting on huge gains.
"I think the selling was tax-related," he said, adding that poor-performing stocks are getting dumped for tax-loss selling.
"There's not a lot of value out there anymore in certain areas," Massocca said. "The names that have been bought and are the hot stocks have gotten expensive. It's a bifurcated market, and you have stocks that have done well all year, but the valuations are such that they're not a compelling buy right now. … They're selling the losers and those tend to be the names that are cheap right now. I think it's a unique set of circumstances related to the calendar."
—By CNBC's Patti Domm. Follow here on Twitter