Tsys finally draw dip buying after.......>

US TSYS/5Y: Tsys finally draw dip buying after weaker NY opening followed strong

overnight selling, then further early NY sales on strong US durable goods. BMO's

Aaron Kohli said a "further selloff in Treasuries would bolster our view for a

good result at the 5-year auction later today." 

- Tsy has a $13B 2Y FRN reopening at 11:30am ET and then the $34B 5Y note

auction at 1pm ET. The 5Y note has been tight in the overnight repo for quite a

while, which should suggest good shorts in the issue. There could be some mild

month-end buying to aid the auction too. Also some leveraged accounts bought

5-year notes on Tuesday and did flatteners.

- BMO's Kohli eyed "a recent breakout of the channel in 5-year breakevens with

the latest leg attributed to potential tax reforms. While we're certainly on

board with the notion that a sizable cut will boost inflation over the next few

years, we're not as certain that anything more than a minor cut will pass.

Nonetheless, breakevens suggest the trade may have some momentum yet, with the

break over 1.80% in 5-year breakevens implying some potential downside for

5-year nominal Treasuries."