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2Y Note Preview: Fed Cut Speculation To See Sub 5% Handle

US TSYS/SUPPLY

Monday's unusual holiday-compressed auction schedule starts with $54B 2Y auction at 1130ET/1630UK (5s sell 1.5 hours later).

  • Today's sale represents a $3B upsizing from October's, and represents a test of market appetite for short-end instruments since the last sale, since which time soft jobs and CPI data have reinforced expectations that the Fed is done hiking and getting closer to cutting.
  • Reflecting this, today is very likely to bring the first 2Y auction to bring a high yield below 5% since July.
  • Previously in short-end supply: the 3Y Note auction on Nov 7 traded through for the first time in 3 auctions, and that was after NFPs but before CPI.
  • The recent history of 2Y auctions has been relatively unremarkable. There hasn't been a 2Y auction tail since July's 0.3bp, though by the same token there hasn't been a trade-through the when-issued yield since May's 1.5bp - with the last two sales coming in "on the screws".
  • October's auction saw bid-cover of 2.64x (5-auction average 2.79x) on a 5.055% high yield (on-the-screws), though primary dealers took 17.63%, the highest since April (5-auction average 14.75%).


High yieldWhen-issued yieldTrade through (tail)High - Median SpreadBid-to-coverPrimary Dealer PercentIndirect PercentDirect PercentOffering Amount
5-Auction Avg4.931%4.934%0.35.02.7914.75%65.20%20.05%45.6
24-Oct-235.055%5.055%0.04.52.6417.63%62.05%20.33%51
26-Sep-235.085%5.085%0.05.52.7313.99%65.02%20.99%48
28-Aug-235.024%5.030%0.64.42.9414.98%65.01%20.01%45
24-Jul-234.823%4.820%-0.36.32.7813.79%65.45%20.77%42
26-Jun-234.670%4.680%1.04.52.8613.34%68.49%18.17%42
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