Treasury will offer $88 billion in two- through seven-year coupons crowded into the Thanksgiving holiday-shortened week. Monday’s $26 billion two-year auction will be followed by $34 billion five-years as well as $13 billion reopened two-year floating-rate notes (FRN)Tuesday and $28 billion seven-years Wednesday.

The two-year auction will be the first test on how the coming sales may be received following a poor showing in October. The when issued note yield dropped 2 basis points Monday to 1.070%, having ranged from 1.09% to 0.90% since Thursday’s Treasury announcement. A stop here would be the highest yield since December 2009. The October sale saw bidders pony-up $2.53 for each $1 on offer, missing the previous $2.65 and an average $2.82. Indirect bidders, the proxy for official foreign interest dropped to 33.7% versus the previous 36.7%, and an average 45.8%. Direct bidders took 10.1%, about half of the prior 19.0%, while primary dealers, those banks required to bid at auctions, were left with 56.2% versus 44.4% in September.

Analysts with Action Economics note that while the market has cheapened significantly, and is now discounting a December Federal Reserve rate hike, worries over a more aggressive policy trajectory in 2017 could limit demand. The two-year is not all that cheap on the yield curve, trading at a 126 basis point premium to the 10-year note versus 98 basis points at the end of October. They point out, however, oversold conditions in Treasuries and the hefty yield relative to foreign sovereigns could entice some buyers.

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