Traders are cautiously optimistic........>

US TSYS/5Y: Traders are cautiously optimistic about demand at the 1pm ET US$34B

5Y note auction. 

- BMO's Aaron Kohli said that outright, "5-year yields are the highest since

March making the note appear optically cheap and offering one of the bigger

incentives for buyers." They are also " locally cheap on a 2s/5s/10s fly as well

as a tighter 3s/5s/7s fly," he said. 

- "Much of that cheapening has occurred versus the front-end of the curve as

2s/5s and 3s/5s has steepened," he said. "Though 5s/10s and 5s/7s have bounced

steeper recently, the move is not as dramatic and the belly looks cheap as a

result. This makes some sense since much of the selloff has been driven by

hawkish Fed rhetoric, better data and questions around selection of a new Fed

chair which should impact 5s the most."

- HISTORY: The Sept. $34B 5Y auction drew a 1.911% high yield, and 1.875% coupon

rate, and 69.6% indirects, 7.05% directs, and 23.31% dealers.