Treasury just sold $36 billion 2-year notes. The auction went well for the most part.

Auction demand, as measured by the bid to cover ratio, was 3.78 bids submitted for every 1 accepted by TSY. Wow that is huge! This is well above the five and ten auction averages of 3.17 and 3.14 respectively AND the highest btc ratio in three years (since August 2007).

The high yield was 0.441%, which was ever so slightly below the 1pm "when issued" yield.  This is a sign that buyers were aggressively seeking out this maturity, which makes sense for several reasons including further JPY intervention and the potential for another Federal Reserve QE program.

Primary dealers added $17.85 billion in inventory, this works out to 50.2% of the competitive bid and 18.5% of what they bid on. Although this take down is weaker than the previous two 2-year note auctions, it is still the primary reason why the high yield traded through screens. Dealers must have been covering shorts.

Direct bidders (bond funds for example) were awarded 10.8% of the issue and 26.5% of what they bid on.  This is the third consecutive 2-year note auction that direct bidders have been less supportive buyers and their weakest turnout since January.

Indirects took home 39.0% of the issue and 56.4% of what they bid on. While indirects were less aggressive than usual, their award was above average, indicating overseas accounts continue to find safe haven in short term U.S. government debt securities. Phew. We need these buyers if rates are to remain low!

Plain and Simple: This was a record low "high yield" for a 2-year note auction, yet investors were still more than willing to buy. Although the street took home the majority of the issue, leaving inventory in the wrong hands (evil laugh), non-dealer bidding improved and auction demand was high and will likely remain high as investors continue to seek out safe haven investments.

Market Reaction...

Stocks are not heading too far in either direction. S&Ps are currently -2.50 at 1140.75. Yawn.

10s are +27/32 at 101 the rock yielding 2.512% (-9.5bps). This is the session price high/yield low.

The November FNCL 4.0 is +10/32 at 102-20. This is the price high of the day...and a firm resistance level.  Yield spreads are now wider vs. benchmarks.

Loan pricing was marginally better this morning, 10.2bps on average. If we hold at these price levels or improve, some lenders may reprice for the better.