10 yr auction ahead of OSYC expiration

Ahead of the FOMC meeting next week and likely commentary on the fate of Operation Smother the Yield Curve that expires at months end, the 10 yr note auction was pretty good as the yield was below the when issued. Also, direct and indirect demand was the best since Dec. The bid to cover though at 3.06 was just slightly below the previous 12 month avg of 3.10. As said by a few Fed members over the past couple of weeks, if the FOMC decides to extend OSYC they will likely play in the MBS world instead of US Treasuries in order to tighten the gap between mortgage rates and the 10 yr US Treasury benchmark. The question of fresh QE remains to be seen.

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