The overnight repo market....>

US TSYS/OVERNIGHT REPO: The overnight repo market saw demand in the 5-year and

7-year notes Friday, while the 10-year note interest waned amid the settlement

of this week's 3/10/30-year auctions. The 3-year notes also had cooled off amid

the auction settlement. The Treasury 5-year note meanwhile had a lingering bid

into the late month 2/5/7-year note auctions.

- Traders were relieved as the 7-year note loosened Friday since the Fed does

not hold a lot of those issues in its SOMA portfolio: it as only a rather small

$789 million of the issue. The 7-year note began at 0.40% and moved out to 0.90%

later. "They were probably most in demand, and they came out the most," said one

trader.

- The Treasury General Collateral level traded at 1.18% while Agency MBS

collateral traded at 1.23%. It was expected that Agency MBS might get a bit

cheaper around next week's FOMC Sept 19-20 meeting, which could see the

announcement of tapering/Fed balance sheet reduction to take effect in Oct; that

could affect MBS negatively slightly more than Treasuries, said some traders.