Treasury 2-year auction preview:
Treasury 2-year auction preview: the auction should go well, as suggested by the strong 52-week bill sale and the general rally in Treasuries. There is risk, however, that the drop in yields has priced out some potential buyers, and/or they participated in the 52-week offering at the expense of the 2-year. The wi has fallen 3 bps to 2.360%, right where the bill stopped earlier. An award rate there would be 10 bps cheap to March's, but would be the second lowest since March 2018. The note is also at the cheaper end of the ytd 1s2s3s butterfly. And though the 2s-10s spread has steepened out to 20 bps, it's below the 30 bps from late last year. The auction should benefit from overseas demand, with still wide spreads, and with most shorter dated securities in negative territory. The 2-year Treasury offers a 295 bp yield pick up to the German Schatz. The FOMC's patient stance is also supportive, though analysts and other analysts still anticipate a rate hike this year, with some Fed officials suspecting such too. The auction could suffer from the lack of a short base, as much of the recent rally has been from short covering. CFTC and the JPMorgan Treasury client surveys showed a decline in shorts in recent weeks. The March auction stopped at 2.261% and garnered a 2.60 cover (2.65 average) and a 56.0% indirect bid (44.2%), while direct bidders took 13.3% (14.6% average).