The two year note auction went off without a hitch today. John Jansen at Across the Curve notes that 54% of the issue was subscribed to by central banks. He then asks if these guys are going to show up for the 5 and 7 year auctions tomorrow and Thursday.

Central banks bought over 54 percent of the issue. I would submit that while that is great for the 2 year note it is a less than festive sign for the 5 year note and the 7 year note which will auction over the balance of this week, The money in the 2 year note is money that will not be invested in the 5 year note and the 7 year note.  The treasury should organize a posse to search for marginal dollars for the 5 year and 7 year .If one wishes to observe bond market panic I think it would develop quickly if the 5 year note or the 7 year note auctioned with long tails as we observed in the Bond auction earlier in May.

Jansen seems to feel as if the bond market is headed for uncharted waters. Given his expertise, that’s fair warning. The next two days could be rather interesting.