The Tsy 2-yr note tightness in overnight....>

US TSYS: The Tsy 2-yr note tightness in overnight repo market does not seem to

reflect unusual factors but rather what some called "dislocation" in usual run

up to late-month 2/5/7-year note auctions. The RP mkt Wed saw Treasury 2Y, 5Y,

and 10Y all tighten. The 2-year note had "legitimate shorts" but also some

trying to "squeeze the shorts", said traders earlier this week. But now traders

said tightness is just due to various accounts doing normal shorting of 2Y note

for pre-auction reasons to hedge against 2/5/7-year auction supply next week.

"It's getting close to the month-end: 2-yr notes generally get special around

this time," said one trader. 

- A different trader agreed. "It's just pre-auction stuff," he said. The 2-year

note traded at 0.70% midday vs. a 0.60% average and a tightest 0.45% rate

Wednesday, he added. 

- But one trader eyed "some dislocation" amid the 2-yr approach to the

late-month auctions. 

- The 5Y note did usual pre-auction midmonth tightening into late month

auctions; 10Y tightened too. The Treasury General Collateral traded at 1.09%.