Seventy One Basis Points Above The Fed

By early Tuesday the two-year Treasury yielded about 4.70 percent and the ten-year about 4.97 percent, Investing.com reported, one day after the Treasury sold $69 billion of two-year notes at a high yield of 4.708 percent, which sits 71 basis points above the 4.00 percent ceiling of the Federal Reserve’s target range, a range the Fed raised to 3.75 to 4.00 percent in September, CNBC reported.

The sale cleared 0.3 basis point above the when-issued level of 4.705 percent, investingLive reported, and bidders covered the offering 2.59 times against an average of 2.64. Indirect bidders, the bucket that counts foreign central banks among its buyers, took 45.68 percent against an average of 58.3 percent, while direct bidders took 41.32 percent against 30.4. The auction was graded C-minus, which investingLive called a little below average.

The Fed meets through Wednesday and announces its decision at 2 p.m. Eastern, FinanceFeeds reported. Traders expect a hold: Kalshi put the odds at 93 percent on Tuesday, and Reuters, as relayed by FinanceFeeds, put the odds of a hike this week at about 11 percent and of one by December at about 82 percent. Those are market-implied odds, not Fed signals.

Chair Kevin Warsh has declined to give markets guidance on the path of rates since joining the Fed in May, Bloomberg reported, and the Fed is in its blackout period, with no Fed speakers scheduled, TheStreet reported.

The next sale is $70 billion of five-year notes at 1 p.m. Eastern today, Walk-Squawk reported, and the Fed speaks twenty-five hours after that.

SPONSORED

Try out Musk's new AI agent – before his big announcement

Elon just created a device he believes will be "the biggest product ever."

He thinks it could 70x investors' money.

And he's about to make a major announcement…

By the end of this month.

Maybe even tomorrow on X.

He's going to make this game-changing device available to the public for the first time.

He has to sell 1 million to become a trillionaire.

Would you bet against him?

Click here to find out how you can claim a stake in this 70x AI agent.

A week ago a different auction, in Tokyo, ran the other way. Japan sold 20-year government bonds on 20 October and drew bids for 5.84 times the amount offered, a record for that maturity, Bloomberg reported through the Seoul Economic Daily, against 4.01 at the previous sale and a 12-month average of 3.73, and the 20-year yield fell as much as 6 basis points to 3.710 percent afterward.

More than 83 percent of the bids came from unidentified buyers. Ryutaro Kimura of BNP Paribas Asset Management said that points to large domestic investors such as major banks and the Government Pension Investment Fund, while Mark Cranfield of Bloomberg Markets Live said it suggests more foreign participation, and this letter cannot tell which of them is right. Masahiko Loo of State Street Investment Management said Japanese government bonds have become an investable asset again.

Dan Runkevicius, a Forbes contributor, wrote Monday that after hedging costs a ten-year Japanese bond yields about 0.8 percentage points more than an equivalent Treasury, and that Japan held about $1.07 trillion of Treasuries as of August, the largest foreign stake, a figure for which he did not name a source. TheStreet’s live coverage carried the same hedged-yield point Monday morning.

Masayuki Nakajima of Mizuho Bank cautioned against reading one sale as a turning point, because the 20-year market is small and a few large buyers could have skewed demand. One auction is not a trend.

Back home the curve has been flattening into the meeting. The gap between the ten-year and the two-year stood near 27 basis points Tuesday morning against about 46 two weeks earlier, Investing.com reported, with both yields near their lowest levels in weeks, and Treasury’s calendar keeps coming: $70 billion of five-year notes today, then September PCE inflation and the third-quarter GDP estimate at 8:30 a.m. Thursday.

In Tokyo, a record bid for twenty years of Japanese debt. In Washington, a C-minus for two.

Monday’s closes, per Cappnotes: the S&P 500 at 7,676.77, up 0.70 percent; the Dow at 52,361.58, up 0.28 percent; the Nasdaq Composite at 26,169.38, up 0.82 percent. A second tally, Daniel San’s Daily Wrap, carried the same levels. Cappnotes had the ten-year Treasury at 4.987 percent at the close; the day’s change differs between the two tallies and this letter does not print it.

December Brent settled at $115.81 on Monday, down 91 cents, CNBC reported as relayed by FinanceFeeds, and Cappnotes agreed. Early Tuesday it traded near $115, Reuters reporting $115.15 at 0000 GMT and HDFC Sky $114.68 in Asia. On Tuesday Iran’s armed forces chief, Maj. Gen. Ali Abdollahi, claimed the Strait of Hormuz is completely closed, AND Magazine reported; Washington has not accepted that claim, and commercial tracking cited by the same outlet shows reduced but not zero traffic.

AAA put regular gasoline at $4.2858 on Monday 26 October, against $4.4874 a month ago and $3.0532 a year ago, with diesel at $6.3492.