The 10 yr note auction was decent as the yield was right in line with expectations with the when issued of 3.54-3.55% at 1pm but below the level of about 12:45pm. The bid to cover of 2.96 is slightly above the 12 month average of 2.91 but below the prior two which were well above 3.0. The backdrop for the auction was a 25 bps drop in yield over the past 2 1/2 weeks as Treasuries saw a global flight to safety. Direct bidders took 25% of the auction, I believe a record high, and dealers took what may be a record low of 33.2%. This behavior is clouding the intent and source of the demand. With still optimism in the equity market (as measured by the sharp snap back) that the US economy remains on the mend and that track won’t be altered and the belief that the European solvency issue has been taken off the table for now, treasuries from here are now a key sentiment indicator to focus on in measuring growth, inflation/deflation and our own still massive supply issues.
