Inflation? 7 yr auction solid

Rising inflation expectations did nothing to dissuade buyers of the Treasury’s 7 yr note auction as it was solid. The yield was about 2 bps below the when issued and the bid to cover of 3.11 was above the 12 previous avg of 2.81 and the highest since May ’11. Also, Direct and Indirect bidders took the most amount since Dec ’10. Treasuries across the yield curve quickly responded with a rally and the 10 yr yield is back below 2.0%. This auction again highlights the growing disconnect between the message the bond market is saying about inflation and growth notwithstanding the move higher in commodity prices and an equity market that can see no wrong.

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