Auction Results Are As Follows:

    5-YEAR NOTES

    YIELDS

    High        2.665 pct

    Median      2.600 pct

    Low         2.538 pct

     PRICE/ACCEPTANCES

    Price              99.813909

    Accepted at high   31.16 pct

    Bid-to-cover ratio 2.59

       AMOUNTS TENDERED AND ACCEPTED (dollars)

    Total accepted                 42,000,036,500

    Total public bids tendered    108,683,366,500

    Competitive bids accepted      41,890,770,000

    Noncompetitive bids accepted      109,266,500

    Fed add-ons                     1,244,773,200

    Primary Dealer Tendered        75,720,000,000

    Primary Dealer Accepted        17,995,580,000

    Direct Bidder Tendered          7,101,000,000

    Direct Bidder Accepted          5,457,370,000

    Indirect Bidder Tendered       25,753,100,000

    Indirect Bidder Accepted       18,437,820,000 (44% indirect)

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Overall, a middle-of-the-road auction with the median yield under WI yields and a small tail on the high yield.  Indirect participation was better than yesterday, a promising trend as the issues grow longer in duration.  With that in mind, the curve continues to flatten, now back down to 273.5 bps and the lower end of the MBS stack is a beneficiary as 4.0's and 4.5's are at least 2 ticks better than other coupons in the stack.

At the moment, the 4.5 is up 3 ticks on the day at 99-18 and the 10yr is up a tick, dropping the yield 2/10ths of a basis point to 3.844.  Meanwhile, the flattening is resulting from a further back-up in the short end with the 2yr higher by 6bps to 1.107.  The long bond is the best performer down 1bp to 4.679.

Volume is stronger today and has almost reached yesterday's totals, but whether or not that volume will prove to be bullish for bonds remains to be seen.  MBS are headed toward their recent highs around 99-19 to 99-20 resistance, but earlier lows at 99-15 look to be well supported after the auction.  Same story of a narrowing, supportive, but not bullish range in tsy's as the 10yr is off its worst levels of the day, but intraday resistance at 3.83 looks like it might be a chore to reach.

More sideways, more uncertainty, more waiting.  Waiting until the new year, of course, will provide the most clarity, but with the final auction of the week dropping tomorrow, we could see a bit more directionality.  Even if we do, remember that these auctions and much of the last two weeks will not be meaningfully traded until the new year so anything that transpires this week will be trumped by whatever is to come when the confetti is cleared from the streets in '10.