The TY contract made a brave........>

US TSYS SUMMARY: The TY contract made a brave attempt to brush off the weak 10Y

note auction yesterday but eventually faded into the US close and a little

beyond. Only a sudden lurch lower in equity markets in the final 10 minutes of

trade provided a bit to Treasuries.

- There remains a high and positive correlation between the 10Y UST yield and

the S&P mini futures price although the dampened price movements compared to

earlier in the week have allowed some of the super-high correlations seen on

Monday/Tuesday to fade.

- Today, 2Y swap spreads have widened 1.2bp, whereas the 30Y spread has narrowed

0.75bp. Since October last year, the 30Y swap spread had been normalising

(heading towards positive territory) but the trend reversed in mid-January. The

cheapening of the 30Y UST to the swap curve is likely a concession ahead of the

30Y Bond auction later today, particularly after the weak 10Y bidding yesterday.

- Fed's Kaplan said that the Fed should move deliberately, sees 3 rate hikes as

appropriate. He watches credit spreads. Williams says the economy can clearly

handle rate hikes.