
The 2 yr note auction was decent. The yield of 1.261% was about in line with the when issued. The bid to cover of 2.73 was a touch above the previous 12 month average of 2.68. Direct and indirect bidders took almost 64% of the auction vs the one year average of 58%. This auction comes with the 2 yr yield at the lowest in a month.
Bottom line, this part of the curve is highly sensitive to expectations of Fed policy and the fed funds futures has another fully priced in rate hike at the September press conference. As for the June press conference meeting, odds are about 50/50. As for another 2 hikes this year, odds are also around 50/50. I do have to say that the Fed deserves some credit in not altering their official economic growth forecasts until AFTER they saw what fiscal policies would actually get passed, obviously in light of what we saw on Friday and the reduced expectations for tax reform to come. That said, 3 hikes in their dot plot didn’t assume any quicker growth so we still may get 2 more. That will most likely be determined by where the S&P 500 is trading at the time.