Traders cautiously projected moderate....>

US TSYS/2Y: Traders cautiously projected moderate demand at the 1pm ET US$26B 2Y

note auction, as it had become cheap enough to draw demand. Traders believed the

2Y auction would draw a 1.590% to 1.602% rate. 

- "It's a tricky one," said one trader. "The curve has steepened out. But there

are so many ways to lok at this: it is not cheap against Asia on an FX-hedged

basis. But it is cheap to the European government debt." 

- A different trader cautioned that the demand could potentially be "tepid" with

the US stocks indexes marching upward. "The DJIA stock market index is up nearly

200 points today," he said. "What do you need 2-year notes for?" he asked,

meaning there did not seem to be a safe-haven need at this moment. 

- Another trader said 2Y was pressured by "the hype about the next Fedchair, as

they have been bringing down the market pretty hard in the front end." 

- HISTORY: The Sept. 26B 2Y note auction drew a 1.462% rate, 1.375% cpn, 2.88%

bid/cover; and 44.15% indirects, 19.04% directs and 36.81% primary dealers.