Having spooked the bond market earlier with her surprisingly hawkish remarks, and sending the 2Y surging while flattening the curve, even more, moments ago the Treasury sold $26 billion in 2 Year paper at a yield of 1.462%, a notable jump from last month's 1.345%, and the highest since October 2008. It also tailed by 0.2 bps to the 1.460%. When Issued, which however was to be expected following the sharp move just a minute earlier.

The internals were average, with the cid-to-cover at 2.88 vs last month's 2.86%, and the six previous auction average of 2.91. Indirect bidders withdrew further and were awarded 44.2% vs six previous auction average 55.1%, and down from 45.80% in August. This was the lowest Indirect takedown since December. Direct bidder interest jumped, resulting in an award of 19% vs six previous auction average 13.7% and notably higher than the 12.6% in August. Finally, Dealers were left to sop up the mess and were awarded 36.8% vs six previous auction average 31.2%.

Overall an average auction, and judging by the rising yield, the bond market is increasingly confident that the short end will continue to rise even if it means the yield curve flattens further as the long end refuses to move nearly as much.

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