10-year Bond Auction Sees Lukewarm Demand with US Dollar Selling Off Since CPI Drop

US Treasuries trade on highs after the June CPI report came in tamer than expected, showing a 0.2% m/m increase in CPI (consensus 0.3%) and the yr/yr rate slowed to 3.0% from 4.0% in May. Core CPI was also tamer than expected at 0.2% (consensus 0.3%), slowing the yr/yr growth rate to 4.8% from 5.3%. Issues in the belly of the curve maintained their lead, dropping the 5-yr yield to a two-week low after recent selling briefly drove that yield back to its high from 2022. We have seen little reaction to the completed $32 billion 10-yr note sale which drew a high yield of 3.857%, which tailed the when-issued yield by 1.0 bps, less than the 1.8 basis point average over the last 6 months. The bid-to-cover ratio (2.53x) and indirect takedown (67.7%) were above average.

Notably yesterday the $40 bln 3-yr note sale found stronger interest, the shorter date in line with the bond market risk profile. The desk gave a C+ rating on the auction. Equities are green while the S&P 500 outperforms. The U.S. Dollar Index is now down 1.2% for the day and down 1.7% for the week.

The U.S. Treasury is working to replenish its General Account with an estimated $1 trillion of Treasury issuance due to the debt ceiling impasse.

The bid to cover 2.53X vs. 12-month average of 2.40X, indirect takedown 67.7% versus 12-month average of 64.5%. The desk gave a C+ rating on the auction.

Auction Highlights

  • Duration: 10 Years
  • Amount:  $32 billion
  • High yield: 3.857%
  • When-Issued level at the time of the auction 3.847%
  • Tail 0.9 basis points versus six-month average of 1.4 basis points
  • Bid to cover 2.53X vs 12-month average of 2.40X
  • Directs 19.9% vs 12-month average of 18.7%
  • Indirects 67.7% versus 12-month average of 64.5%
  • Dealers 12.4% versus 12-month average of 16.8%

Auction grade: C+

Yields after the Auction.

  • 2-yr: -15 bps to 4.74%
  • 3-yr: -17 bps to 4.38%
  • 5-yr: -17 bps to 4.07%
  • 10-yr: -13 bps to 3.85%
  • 30-yr: -8 bps to 3.94%

Yields Before the Auction.

  • 2-yr: -16 bps to 4.73%
  • 3-yr: -19 bps to 4.36%
  • 5-yr: -16 bps to 4.08%
  • 10-yr: -10 bps to 3.88%
  • 30-yr: -3 bps to 3.99%

Average results of previous 12 auctions:

  • High yield: 3.551%
  • Bid-to-cover: 2.40
  • Indirect bid: 64.5%
  • Direct bid: 18.7%

Prior auction results:

  • High yield: 3.791%
  • Bid-to-cover: 2.36
  • Indirect bid: 62.3%
  • Direct bid: 19.9%
  • Directs a measure of domestic demand
  • Indirects a measure of international demand
  • Dealers take the balance

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From The TradersCommunity US News Desk