The Federal Reserve has said they are on hold and staying on hold, so what now? There is little to do outside of NOT getting short 2-yrs as they shall remain tied to the Fed but also, not even thinking about being sold much harder.

The market is marching into year-end with a trunk full of junk, with all sorts of global sovereign and corporate offerings hitting and very little interest outside of the very shortest-maturity issues.

The market is looking out to another run of government supply, with $44B 2-years, $41B 5-years and $31B 7-years on the block during the upcoming holiday week. The architecture of the upcoming week is packed with supply enough, without the weird cut-out Thursday and barely attended Friday to follow.

The market will be chewing up a batch of treasuries with a big week-end hole to trade into, as desks will be virtually empty and manned by junior and hardly-there staffs. The market will be very, very cautious about the late week's offerings, with the concern over newly fermented inflation worries on the heels of a slightly hotter CPI print and chatter out of central bank officials leaving the shorter maturities looking good and the longer (7-years) looking less appealing.

The minor, albeit noticeable, hints at future inflation and inflation expectations (see the big uptick in long-term inflation expectations in the University of Michigan survey) are going to stay and pop further to become an issue. The market is so light these days ($3 trillion...whatever) that the littlest inflation issue can tip things over.

The last 7-year offering was on the way, sloppy and ugly side in late October, with the combination of the Federal Reserve's last run in bond buy backs' hitting the well-prepared market and the general disinterest in longer term issues helping to drag prices and boost yields. The poor reading on the yield, the amount of pay demanded for a mid-level maturity was pretty harsh and helped gut the market.

Treasury is going to offer a new rash of, at-least, record amounts of 2-5-and-7-years into the holiday season. This longer (read 5-to-7-years) may be a questionable offering, especially in the wake of the last 7-yearr auction, with the market demanding a serious concession on what they were willing to buy, but still showing up, wjiile demanding a higher than expected yield.. This 7-yearr offering hits in the middle of a holiday week with a trailing, essentially-closed, Friday, where options will be so limited by the illiquid trade that any size will be decimated, and any holders of "longer-term" issued will be stuck with nowhere to lay off any instruments.

Beth Malloy