Tsys hovered around session lows........>

US TSYS/10Y: Tsys hovered around session lows after last-minute pre-auction prep

sales/shorts into the 1pm ET US$23B 10Y auction (new issue); mkt had earlier

morning muted Japanese sales in intermediates. Traders said too recent 10Y Tsy

futures sales pressured cash market.

- Traders have cautious optimism into 10Y auction; but expect it to need more

price concession and project it will get done at 2.323% and 2.330%.

- Nomura N.American head of rate research George Goncalves and analysts Stanley

Sun and Penglu Zhao "Tsy's plan to increase issuance on the front end, instead

of long end, may continue to benefit 10yr;" and "lack of macro events and a

persistent low vol environment could also support belly demand" But they argued

"continuous flattening of the curve is making the 10yr valuation unattractive.

Balance normalization may still put pressure on the belly of the curve." 

- HISTORY: Oct. $20B 10Y reopening auction: 2.346% yield, 2.54 bid/cover, 69.1%

indirects, 6.02% directs, 24.9% primary dealers.