10-year Bond Auction Struggles as Treasury Issues $195 Billion of Debt Today

US Treasuries trade with longer-dated bonds just above the lows seen in late morning trade while shorter tenors outperform with slight gains. We have seen little reaction to the completed $32 bln 10-yr note sale which drew a high yield of 3.791%, which tailed the when-issued yield by 1.5 bps while the bid-to-cover ratio (2.36x) and indirect takedown (62.3%) were below average. Notably the earlier$40 bln 3-yr note sale found stronger interest, the shorter date in line with the bond market risk profile. The desk gave a D rating on the auction. Equities are green while the Nasdaq outperforms.

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. Earlier the week’s auctions started off with solid domestic demand for the $40 billion 3-year note sale. Overall, the sales were absorbed well, $123 billion worth of bills was also sold today. A total of $195 Billion of debt issued today.

The bid to cover 2.36X vs. 12-month average of 2.41X, indirect takedown 62.3% versus 12-month average of 64.6%. The desk gave a D rating on the auction.

Auction Highlights

  • Duration: 10 Years
  • Amount:  $35 billion
  • High yield: 3.791%
  • When-Issued level at the time of the auction 3.776%
  • Tail 0.9 basis points versus six-month average of 1.4 basis points
  • Bid to cover 2.36X vs 12-month average of 2.41X
  • Directs 19.9% vs 12-month average of 18.6%
  • Indirects 62.3% versus 12-month average of 64.6%
  • Dealers 16.8% versus 12-month average of 16.8%

Auction grade: D

Yields after the Auction.

  • 2-yr: -3 bps to 4.59%
  • 3-yr: -2 bps to 4.24%
  • 5-yr: UNCH at 3.92%
  • 10-yr: +3 bps to 3.77%
  • 30-yr: +3 bps to 3.92%

Yields Before the Auction.

  • 2-yr: -2 bps to 4.60%
  • 3-yr: -1 bp to 4.25%
  • 5-yr: +2 bps to 3.94%
  • 10-yr: +4 bps to 3.78%
  • 30-yr: +4 bps to 3.93%

Average results of previous 12 auctions:

  • High yield: 3.487%
  • Bid-to-cover: 2.41
  • Indirect bid: 64.6%
  • Direct bid: 18.6%

Prior auction results:

  • High yield: 3.448%
  • Bid-to-cover: 2.45
  • Indirect bid: 67.5%
  • Direct bid: 19.5%
  • Directs a measure of domestic demand
  • Indirects a measure of international demand
  • Dealers take the balance

Live From the Pit

From The TradersCommunity US News Desk