US 2-Years Better Bid at Auction

The markets interpretation of how dovish Bernanke’s employment speech was yesterday provided for a strong 2-year US auction this afternoon. Despite the US Treasury selling 2-year notes at the highest yield since last July, the +0.34% yield was below the market rate at time of sale. With consumer confidence dipping and home prices falling earlier this morning was always going to provide a better bid for product at time of auction. Today’s Treasury sale is the first of three offerings this week totaling $99-billion in 2’s, 5’s and 7-year notes.

Direct bidders took +21.4% of the +$35-billion sale, matching the highest proportion in almost two years. Indirect bidders took down +34.3%, above the +33.1% recent average. The bid-to-cover ratio came in at 3.69. Up until now, investors have been wavering about whether policy makers were going to provide more stimulus for the US economy. Bernanke’s cautious comments has since revived expectations, again boosting the appeal of US treasuries.

Earlier this morning, the Fed bought Treasuries due from February 2036 to May 2041 under Operation twist. Under this plan to sell short dated notes by purchasing longer dated securities, policy makers hope to push longer dated yields lower for consumers and business to facilitate economic recovery.

Other links:
EUR Positions Remain Offside

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