2-year sale goes well, but that's not our real concern

The gubmint is flooding the markets with bond supply during this holiday-shortened week. We're looking at $101 billion in longer-term debt sales, a record-setting tally. Add in short-term bills, and you get a whopping $162 billion in debt sales ... in just four days!

The first leg of the sales went well. Forty billion dollars worth of 2-year notes were just auctioned off at a yield of 0.94%, slightly better than the forecast of 0.969%. Indirect bidding was strong at 54.4%, the highest since November 2006. And the bid-to-cover ratio was a healthy 2.94%, the highest since September 2007.

But the short end of the curve isn't our area of concern. It's the long end that has been getting hammered. Will we see decent demand for the five-year notes coming tomorrow? Or the seven year notes being sold later in the week? And what about the 10-year notes and 30-year bonds coming down the pike in future weeks and months? That's the real question for the bond market.