Traders say developments in Europe trump Fed chatter, but the Fed is high on their list. "The next big thing is the Fed meeting, and whether they do 'operation twist' or not," said Klingman.
He said the market may be betting wrong, though, when it comes to the 30-year. He said the Fed may choose to buy 7-year and 10-year notes to placate the FOMC's hawkish members, if it decides to go ahead with the program.
"It affects mortgages more, helps the housing market more. The unwind becomes tougher down the road" with the 30-year, said Klingman.
"The 'operation twist' is a possibility. I just worry that these policies go to what end? You're not going to increase employment by lowering interest rates any more," said Brian Edmonds, head of interest rate trading at Cantor, Fitzgerald.
Edmonds said beyond Europe and the Fed, he is watching the action in commodities and currency markets.
Indirect bidders, which could include central banks, took 39.4 percent, while direct bidders received 17 percent.
"The street was a little complacent, thinking there wouldn't be great demand for bonds," said Edmonds "Clearly, there was much better demand for the back end of the curve. You have to think some major players needed bonds."
Prior to the auction, the long bond was as much as a full point lower ahead, ignoring weak retail sales data that boosted bond prices further down the yield curve.
"I was a little worried about how wide 10s and 30s have been...That's one part of the curve that has been historically steep," said Edmonds.
The spread between the 30- and 10-year was 130 bps Wednesday. At the end of 2008, the last time the 10-year was at this level, the spread was at 55 bps.
Retail sales for August came in unchanged from July, below expectations for a 0.3 percent gain.
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