Bonds Mixed, Long End Leading Higher in Light Trade – 10-Year 1.735%

U.S. Treasuries remained mixed Friday with the long bond leading a low-key push higher. Traders were looking to supply in the week ahead and the Nov. 8 elections, both of which may keep trade tethered to comparatively tight ranges while the week’s economic releases may also have a muted impact.

Upcoming supply is expected to keep a lid on the upside. There will be a run of auctions including $78 billion in three- and six month bills Monday, and an expected $45 billion four-week Tuesday. Coupon offerings include $26 billion in two-year notes Tuesday, $34 billion five-years Wednesday along with $15 billion two-year floating-rate notes (FRN) and $28 billion seven-year notes Thursday.

When-issued (wi) yields are higher with prices lower Friday as the market sets up for the auction. The two-year is up 1 basis point at 0.85%, while the five-year is flat at 1.27%, with the seven-year yield fractionally lower at 1.56%. These are ten basis points or more cheaper than the September award rates, and are some of the highest in months, which is expected to help underpin demand. However bidding for the two-year may remain soft ahead of a likely rate hike by December Federal Open Market Committee meeting. On the other hand, month-end activity may be supportive for the longer-dated issue notes. Earnings news will headline next week and stocks may provide some direction for bonds.

By Fred Canto