US TSYS/SUPPLY: Preview 5Y Auction - Highest Yield Since July 2006

Tsy futures are near mid-morning lows (FVZ6 -16.25 at 103-23.5; TYZ6 currently -24 at 105-08) ahead of the $70B 5Y note auction (91282CRN3) at 1300ET, WI is currently running at 4.967% - highest since July 1, 2006 - and 57.4bp cheap to last month's tail. * August auction recap: Tsy futures held near lows after a small - but 15th consecutive tail: $70B 5Y note auction (91282CRK9) drew 4.393% high yield vs. 4.392% WI; 2.37x bid-to-cover vs. 2.28x prior (2.32x 5-auction avg) * Peripheral stats: Indirect take-up to 61.51% from 59.24% prior (65.98% 5-auction avg), direct take up to 28.44% vs. 27.22% prior (20.51% 5-auction avg), while primary dealer take-up retreated to 10.05% vs. 13.53% prior (13.5% 5-auction avg). ------------------------------------------------------------------------------- High When-is Trade High - Bid-to- Primary Indirec Direct Offerin yield sued through Median cover Dealer t Percent g yield (tail) Spread Percent Percent Amount 5 4.227% 4.222% (0.50) 5.86 2.33 12.38% 65.91% 21.70% auction avg 26-Aug- 4.393% 4.392% (0.1) 5.3 2.37 10.05% 61.51% 28.44% $70B 26 27-Jul- 4.408% 4.400% (0.8) 6.5 2.28 13.53% 59.24% 27.22% $70B 26 24-Jun- 4.200% 4.190% (1.0) 6.5 2.35 12.89