7 yr note auction not good

Following the weak 5 yr auction yesterday and with the highest yield since mid Jan, the 7 yr auction was not good as the yield was 3-4 bps above the when issued and the bid to cover at 2.61 was the lowest since May ’09 and below the one year average of 2.67. The combined indirect and direct bidders were the lowest since May ’09 as dealers took down 50% of the auction. To repeat what I said yesterday, I don’t know if it was the healthcare bill and the budget/debt concerns associated with it, the enormous supply we face as a result, or the Fitch downgrade of Portugal, or a reaction to the creep up in LIBOR rates or a delayed reaction to the improving economy, however modest but something has changed this week in the US Treasury market and the cost of borrowing is going up as it is in Europe too.

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