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Prices of Treasury coupon securities are posting modest gains in overnight trading.

We are well into the holiday week and I suspect that trading volumes will be on the light side, notwithstanding the chunky auction of 5 year notes later today. That process should dominate the bond market landscape as dealers put scarce capital at risk.

David Ader at CRT make several salient points about this auction. Of the last twenty-five 5-year note auctions, only four have stopped through 100PM market levels. There are several reasons to anticipate the same result today.

As I noted earlier, it is a holiday week and many players are on vacation or will be shortly. That will dampen bidding as the larger players will not return until after the holiday.

If one misses the auction today, there is no reason to panic as the Treasury has a round of 7-year notes on the block tomorrow. So this is not exactly one’s last opportunity to buy bonds.

Of more immediate concern to bidders is the release of the minutes of the last FOMC which will be available one hour following the bidding for the 5-year note. Mr Ader at CRT makes the important point that the Bernanke speech last week trumps the minutes in that it will be difficult for the chronicle of that meeting to offer a more dovish spin on the Fed than did the Bernanke speech.

So in a sense it is possible that the minutes can only deliver bad news to the bond market as the Bernanke speech has already broadcast a broadly bond bullish story.

Overnight the German IFO was better than expected and European IP registered solid gains.

The yield on the 2 year note declined a basis point to 0.77 percent. The yield on the 3 year note slipped 2 basis points to 1.24 percent. The yield on the 5 year note is lower by a basis point at 2.16 percent. The yield on the 7 year note declined 2 basis points to 2.86 percent. The yield on the 10 year note dropped a solitary basis point to 3.34 percent. The yield on the Long Bond declined 2 basis points to 4.26 percent.

The 10 year/30 year spread is a tad flatter at 92 basis points.

The 2 year/10 year spread is 257 basis points.

The 2 year/5 year/30 year spread (using the new 2 year and the WI 5 year note) is a tad cheaper at 63 basis points.

Source: Bond Expert: Tuesday Outlook