The US Treasury is poised to auction $69 billion in 2-year notes today, a move that comes at a time of shifting sentiment in the bond market. This auction reflects a notable change in tone, as recent weeks have seen a bullish trend in Treasury prices. Analysts from BMO provide insight into the current market dynamics surrounding this auction.
The 2-year notes are being auctioned at a rate of 3.45%, which does not present a compelling outright discount. However, there is a significant curve concession, as the spread between 2-year and 10-year rates has dipped below the 100-day moving average of 59.5 basis points, a decrease of more than 15 basis points from steeper levels noted a few weeks ago.
Market activity has shown fluctuations, with 2-year rates recently hitting a low of 3.38% last Tuesday. This uptick in rates corresponds with a shift in market expectations regarding rate cuts, which now appear to be pushed back into the second half of 2026. Despite this delay, the overall expectation remains that there will be 2-3 rate cuts by the end of this year, with the market-implied terminal policy rate stabilizing around 3.0%.
In addition to these financial trends, renewed uncertainty surrounding global trade policies has heightened the market’s sensitivity to potential tariff announcements. Nevertheless, this risk has not been reflected in larger auction tails for the year 2025. As policymakers increasingly focus on the inflation aspect of their dual mandate, the attractiveness of 2-year rates below 3.50% remains questionable.
Analysts from BMO, including Vail Hartman, Delaney Choi, and Ian Lyngen, suggest that the current magnitude of the curve concession may be sufficient to encourage a modest stop-through during today’s auction, scheduled for 1:00 PM ET. This auction serves as a critical indicator of investor sentiment and market direction moving forward.
