Buyers swarmed the two-year Treasury auction, at the same time market expectations for a Fed rate hike were building.
While many see the success of Tuesday afternoon’s auction as the result of a liquidity issue, the continued flattening of the yield curve between the two-year issue and 10-year notes could be seen as an ominous sign that the market is worried about the Fed tightening.
“By any historical measure, it was a very, very strong auction, and this comes in the face of rising expectation for a June rate hike. Those two things seem incongruous. I think what we have to look at is the structure of the market. You have liquidity issues that lead larger real money investors to use the auctions for liquidity options, to get into large amounts of bonds,” said Tom Simons, money market economist at Jefferies.
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Time For Truth: (CNBC) – Strong Treasury auction could be signaling something darker on horizon