Ahead of the $42 billion 5 year Treasury note auction...

Treasuries continue to be offered at lower prices/higher yields. The 7 year note is still the weakest maturity on the curve followed by the 10 year and 5 year note. (SEE YLD NET.C COLUMN)

 The 2 year and 5 year TSY note yield are both trading at two month highs. Here is a chart of the 5 year note yield:

The 10 year TSY note is at a one month yield high. Currently offered 23 ticks lower to 98-24 yielding 3.777%. 10s attempted a rebound rally but ran into firm resistance at a sell side volume buldge (where the majority of sell orders accumulated (distributed)). I call this "position resistance".

The FN 4.5 is back to its lowest levels of the day, testing a long-standing support level. The FN 4.5 is -0-13 at 100-20. The secondary market current coupon is 4.397%. The current coupon yield is 61.8 basis points over the 10 year TSY note and 69.3 basis points over the 10 yr swap rate. 10 yr swap spreads still negative...crazy!

The rates market has been intensely skewed in favor of sellers this morning, if that sentiment is steady, the 5-year note auction will not be met with firm demand. On the other hand, this maturity has cheapened greatly over the past few hours and is a bargain buying opportunity.

REPRICES FOR THE WORSE ARE STARTING TO BE CONSIDERED. A BREAK BELOW 100-20 WOULD LIKELY FORCE SOME LENDERS TO RECALL RATES