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August 8, 2017 By Peter Boockvar

3 yr note auction was…

The 3 yr note auction was excellent. The yield of 1.52% was below the when issued by almost 1 bp. The bid to cover of 3.13 was well above the 12 month average of 2.81 and is the best since December 2015. Also of note, direct and indirect bidders took almost 75% of the auction vs the one year average of 61%, thus leaving the dealers with the smallest amount since at least 2003 that I have data on.

Bottom line, as this part of the curve is highly sensitive to expectations for Fed policy, if the markets could speak, they are saying the Fed is almost done with rate hikes. Odds for December are at 50% and I believe the determining factor of whether we will see that hike will be determined mostly by where the S&P 500 is after QT begins. Assuming no major change in economic growth, the S&P 500 will either sell themselves out of a December rate hike after QT or rally itself right into one if they handle QT well. If the Fed was just looking at the data in front of them, because they seem so focused on the labor market and the shrinkage in the supply of labor that is becoming more acute I think they hike again in December after QT in September.

 

2/10 Spread

Screen Shot 2017-08-08 at 1.35.33 PM

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About Peter

Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.

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Disclaimer - Peter Boockvar is an independent economist and market strategist. The Boock Report is independently produced by Peter Boockvar. Peter Boockvar is also the Chief Investment Officer of Bleakley Financial Group, LLC a Registered Investment Adviser. The Boock Report and Bleakley Financial Group, LLC are separate entities. Content contained in The Boock Report newsletters should not be construed as investment advice offered by Bleakley Financial Group, LLC or Peter Boockvar. This market commentary is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction or investment strategy. The views expressed in this commentary should not be taken as advice to buy, sell or hold any security. To the extent any of the content published as part of this commentary may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. No chart, graph, or other figure provided should be used to determine which securities to buy or sell. Consult your advisor about what is best for you.

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