Bonds Bounce After Sharp Losses Following Strong 3-year Treasury Note Auction

U.S. Treasuries traded to fresh highs after the completion of today’s $54 bln 3-yr note sale, which met strong demand. U.S. bonds climbed on Tuesday, bouncing from two days of sharp losses. No U.S. economic data on today’s calendar helped also. The sale drew a high yield of 4.169%, which stopped through the when-issued yield by a solid 0.8 bps while the bid-to-cover ratio (2.58x vs 2.68x) was below average. Indirect takedown (66.0% vs 63.1%) was solid. Issues in the belly of the curve have shown relative strength since the start and they remain ahead at this juncture with the 5-yr yield returning to its 50-day moving average (4.030%). The desk gave an A rating on the auction.

Cleveland Fed President Mester said that she expects the Fed to gain confidence in cutting rates later this year but added that a premature cut would be a mistake. The U.S. Dollar Index fell 0.2% to 104.21.

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.

Auction Highlights

  • Duration: 3 Years
  • Amount:  $54 billion
  • High yield: 4.169%
  • When-Issued level at the time of the auction: 4.177%)
  • Stopped through the when-issued yield by 0.8 bps
  • Bid to cover 2.58X vs 12-month average of 2.68X
  • Directs 18.3% vs 12-month average of 19.6%
  • Indirects 66.0% versus 12-month average of 63.1%
  • Dealers 15.7% versus 12-month average of 17.3%

Auction grade: A

  • Directs a measure of domestic demand
  • Indirects a measure of international demand
  • Dealers take the balance

Yields after the Auction.

  • 2-yr: -8 bps to 4.38%
  • 3-yr: -8 bps to 4.18%
  • 5-yr: -8 bps to 4.04%
  • 10-yr: -7 bps to 4.09%
  • 30-yr: -5 bps to 4.30%

Yields Before the Auction.

  • 2-yr: -4 bps to 4.42%
  • 3-yr: -5 bps to 4.21%
  • 5-yr: -6 bps to 4.06%
  • 10-yr: -6 bps to 4.11%
  • 30-yr: -4 bps to 4.31%

Average results of previous 12 auctions:

  • High yield: 4.337%
  • Bid-to-cover: 2.68
  • Indirect bid: 63.1%
  • Direct bid: 19.6%

Prior auction results:

  • High yield: 4.105%
  • Bid-to-cover: 2.67
  • Indirect bid: 65.3%
  • Direct bid: 16.8%
  • Directs a measure of domestic demand.
  • Indirects a measure of international demand
  • Dealers take the balance.

Bond auctions week ahead:

Next week will bring some new supply.

  • Monday: $79 billion 13-week bills, $70 billion 26-week bills
  • Tuesday: $80 billion 42-day cash management bills, $54 bln 3-yr Treasury note auction results at 13:00 ET
  • Wednesday: $56 billion 17-week bills, $42 bln 10-yr Treasury note auction results at 13:00 ET;
  • Thursday: $80 billion 4- and 8-week bills, $25 bln 30-yr Treasury bond auction results at 13:00 ET

Live From the Pit

From The TradersCommunity US News Desk