With the overseas woes of Cyprus and Europe, we are closely monitoring the Treasury Note auctions on what is a shorter pre-holiday week. Unfortunately, the 7-Year Treasury Note auction seems to have missed the mark. The good news is that this is at least when the S&P 500 Index is hitting new all-time highs after the DJIA already hit new highs. It may simply be that the risk-on appetite is trumping any flight to safety, and many investors from around teh country and Western Europe already being out early for Easter.

The $29 billion 1.125% coupon (1-1/8) went off at a discounted price of $99.1782 and this appears to be the lowest demand in six months for the 7-year note auction. Indirect bids were 35.5%, over 2 points shy of normal. The lowest yield for the pricing 1.248% with a bid to cover of what we calculated as 2.56. Investors are likely to focus on the more liquid and key 10-year Treasury Note based upon this auction. That yield is now 1.857%.

our take is that the strength in equities is more of the issue today. The Junk Bond Composite Spread measured by S&P was down to 509 basis points yesterday and stocks are hitting record highs. We hate to just ignore data but we are going to chalk a disappointing 7-Year T-Note auction simply to being interest elsewhere and due to the shortened work week with many A-Team Wall Streeters already being out for the week.

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