The Treasury Department just auctioned a record $41 billion 5yr TSY notes. HERE is the Treasury Direct press release

The auction stopped out at a high yield of 2.388%, 1.5 basis points higher than the 1pm mid-market "When Issued" yield of 2.373%, better than the yield "tails" seen at the previous three auctions.

The bid to cover ratio, a measure of auction demand, was 2.63. The highest bid to cover recorded in the previous 17 auctions.

Primary Dealers were awarded $17.3 billion of the offered $41 billion, 42.2% of the issuance and 22.7% of what they bid on (hit rate)....Dealers took home less than average

Direct Bidders were awarded $1.2 billion of the offered $41 billion, 2.9% of the issuance and 4.2% of what they bid on. Directs took home less than average amount

Indirect Bidders were awarded $22.3 billion of the offered $41 billion,  54.4% of the issuance and 77.7% of what they bid on. Indirects picked up the slack...

Not as strong as yesterday's 2yr note auction, however the results are better than recent 5yr auctions.

After an initial "knee jerk" move lower in price, the rates market is back to its best levels of the day. The 10yr note is currently +0-12 at 101-26 yielding 3.409%. The FN 4.0 is trading +0-14 at 98-19 yielding 4.146%  and the FN 4.5 is 10/32 higher at 101-01 yielding 4.375%. The secondary market current coupon is 4.295%, more than 10 basis points lower than the current coupon yield yesterday morning.

Below is the FN 4.5 two day. 101-00 is a relatively strong level of resistance. Call it a psychological profit taking price point for banks. If 101-00 is to be broken we need the 10yr to cross through 3.40% and test 3.38%...

Either way...REPRICES FOR THE BETTER HAVE ALREADY BEEN REPORTED

Given recent weakness in equities and mounting evidence that the BIG PICTURE economic stabilization will be a long, slow process...we believe rates have reason to run lower in the long term. However, in the short term we are only willing to go so far as to say the market will move about the recent range in random fits of buying and selling. 

We are playing the tighter 3.40 to 3.46 range at the moment, each progression to another range within the bigger 3.27 to 3.50 range will be met with a new tactical bias and strategic guidance. It's still a trader's world, and we're still living in it.

Enjoy the reprices for the better...