Treasury has just auctioned $44 billion 2 yr notes. The high yield was slightly above the 1pm current market bid ("when issued"), stopping out at 1.089%.

The bid to cover ratio was 2.91 , which means 1 award for every 2.91 bids. The bid to cover ratios at the last three 2 yr note auctions have been in the 3 while today's auction demand was not terrible, it wasnt "up to par" either.

Direct bidders were the major source of auction support, taking home a much larger than usual 19.3% of the auction. To put this is perspective, direct bidders are usually awarded somewhere in the range of 1-10% of the total auction amount, so 19% is pretty strong sponsorship from directs.

Primary Dealers took home 45.4% of the total auction, which is 21% of what they bid on, VERY CLOSE to recent averages, but much less than the days of 30-40% of what they bid on. 

Indirect bidders ("ferners") were not as supportive as we would have hoped,  taking home only 34.5% of the total auction (64.8% of what they bid though, this is above average). Compare a 34.5% total award to recent averages in the mid-40% range. MUCH LESS THAN NORMAL PARTICIPATION FROM OVERSEAS BIDDERS.

Here is a recap of the results:

    High                                     1.089 pct
    Median                                 1.040 pct
    Low                                      0.963 pct
    Price                                    99.824397
    Accepted at high                   59.68 pct
    Bid-to-cover ratio                  2.91
    Total accepted                             44,000,044,500
    Total public bids tendered             128,028,884,500
    Competitive bids accepted             43,627,860,000
    Noncompetitive bids accepted        372,184,500
    Fed add-ons                                1,304,048,200
    Primary Dealer Tendered               92,180,000,000
    Primary Dealer Accepted                19,954,360,000
    Primary Dealer Hit Rate                 21.6% of what they bid on
    Primary Dealer Total Award            45.4% of total auction
    Direct Bidder Tendered                 12,039,000,000
    Direct Bidder Accepted                  8,494,000,000
    Direct Bidder Hit Rate                   70.6% of what they bid on
    Direct Bidder Total Award              19.3% of total auction
    Indirect Bidder Tendered               23,437,700,000
    Indirect Bidder Accepted               15,179,500,000
    Indirect Bidder Hit Rate                64.8% of what they bid on
    Indirect Bidder Total Award            34.5% of total auction

    Issued date    Dec. 31, 2009
    Maturity date  Dec. 31, 2011
    CUSIP number   912828ML1

After the auction...the market has barely budged. 10s are holding steady in a sideways trend channel....

"Rate sheet influential" MBS coupons are doing the same...grinding to the right in slow trading flows.

Since readers have been asking me to "grade" the auction. I give it a C.

Direct bidders had to do all the heavy lifting today. Weak participation from indirect bidders is not a sign of great auctions to come, plus I find it unlikely that direct bidders will keep up this pace all week. So the road ahead has an "apathetically average" AT BEST, outlook attached. 

Plain and Simple: "Wait and see" with a bias towards higher rates heading into 2010.