The 7 year note auction was good as the yield was about 3 bps less than expected. The bid to cover of 2.63 was above the average seen in the previous 5 of 2.4 but below the June auction of 2.82. The level of indirect bidders totaled 62.5%, below the 67.2% seen in June which was the first auction that reflected the new methodology. After the poor 5 year yesterday, yields backed up enough to find buyers today, especially with yields at the highest level since late June. The results are a relief in terms of government funding. Does it reflect a benign outlook on inflation and not as much of a confident growth outlook as the stock market has and/or is it comfort that government deficits will continue to have little problem getting financed? Or is it as simple as yields backed up over the past month and buyers took advantage? In two weeks we’ll get the benchmark 10 yr auction followed by the 30 yr. That will be the real test in terms of sentiment.
