The 2 yr note auction was mixed, which of course happened within minutes of Yellen basically telling us she would like to hike again in December. The yield of 1.462% was a hair above the when issued but the bid to cover of 2.88 was higher than the one yr average of 2.77. Direct and indirect bidders took 63% of the auction which is slightly above the previous 12 month average of 61%.
Bottom line, I have no idea how many bids came in before Yellen spoke and what was entered after. As a follow up comment to my last one on Yellen, we have to understand that in her bones, dovishness is rampant so it is with that backdrop that when I hear some hawkish commentary, it stands out. I also want to make this point: Multiple Fed members have told us that in the future they want to go back to having the fed funds rate be the main tool for impacting the economy and not its balance sheet. Therefore, they have an inherent desire to reload that weapon via higher rates but if they stopped here, they wouldn’t have much ammunition, hence more hikes. The irony of course is that further tightening will eventually put the US economy in a recession (massive debt and higher interest rates is not a good combination and it historically does) and bear market which they then will respond with rates back to zero.