The jump in crude oil following OPEC production cuts may have also fanned fears that commodity/energy prices could crimp growth ahead, rather than spark inflation. Fannie Mae priced $6 billion in 5-year and 10-year notes, which set up hedge lock unwinding, though mortgage servicers were relatively quiet, other than taking some profit on December bond calls.
The $25 billion 2-year auction went off without a hitch, awarded below 1.70% with a 2.20 bid/cover and relatively low non-comps. There was also little sign that foreign CBs had lost interest in the paper, despite dollar weakness. The December bond closed up over a point higher at 109-25, while the 2-year note and 30-year bond spread tightened 2 basis points to +342 basis points, and will drop 5-6 basis points further accounting for the "When-Issued" roll. Fed's Poole and McTeer were upbeat.