TD analysts Cheng Chen and Gennadiy......>

US TSYS/2Y: TD analysts Cheng Chen and Gennadiy Goldberg noted US Treasury "will

auction a combined $101bn" this week, "selling $26bn in 2s on Tuesday, $34bn in

5s and $13bn in reopened 2yr FRNs on Wednesday and $28bn in 7s on Thursday. With

$80bn maturing at month-end settlement, the auction will raise $21bn in new

cash. There will also be $11bn in SOMA holdings maturing, with the Fed adding on

$3.2bn to 2s, $4.2bn to 5s, and $3.5bn to 7s."

- They add that "with balance sheet runoff only beginning in October,

reinvestments will continue at this auction series. Treasury yields have moved

notably higher since the last auction cycle and the curve has flattened as the

market has lifted rate hike expectations. Fed funds futures are currently

pricing more than 65% odds of a rate hike by December and nearly 2 hikes by the

end of 2018. This reflects the Fed's perceived near-term hawkishness even as

balance sheet runoff begins in October. Current 2s, 5s and 7s are all trading

special in repo, hinting at the presence of a short base.