With the QE, reflation trade back on today (buy gold, sell $’s, buy other commodities and currencies, buy Treasuries, buy stocks), the 5 year note auction was very good. Yes, there is an inherent contradiction of buying conventional Treasuries and believing in reflation but for now the Fed is on your side. The yield was 1-2 bps below the when issued and the bid to cover of 2.96 is the 2nd best since mid ’06 and above the 12 month average of 2.71. Knowing the Fed is likely to announce another round of Treasury purchases, likely a month from now, buyers now are just jumping on board. Also a potential buyer are the Japanese as they park some of the $’s they bought a few weeks ago when they intervened.
