Foreign Buyers Stayed Away from 3-Year Treasury Bond Auction

Treasuries felt pressure after the completion of an underwhelming $40 billion 3-yr note auction, which precedes tomorrow’s $32 bln 10-yr note reopening. Foreign buyers were much less than expected. The sale drew a high yield of 4.318% which tailed the when-issued yield by nearly a basis point while the bid-to-cover ratio (2.57x) was above average. The desk gave a D rating on the auction. The S&P 500 and Nasdaq 100 are near the low for the day.

Bond markets have been rocked in the past week as Central Banks globally ratcheted up rates. The benchmark 10-year Gilt has been extremely volatile since the UK’s new economic plans and was ravaged after the Bank of England released a statement.

In just one month the US government is paying nearly a full percentage point, over $2 billion in extra interest over the life of these bonds.

Today’s $40 bln bid-to-cover ratio (2.57x) and dealer takedown (27.05%) were above average.  The desk gave a D rating on the auction.

  • The domestic demand was below its twelve-month average indicative of softer domestic demand
  • International demand (indirect) was also comfortably below the six-month average
  • Primary dealers were left with 27.05 % versus normal around 22.9%

Auction Highlights

  • Duration: 3 Years
  • Amount:  $40 billion
  • High yield 4.318%
  • WI level 4.31%
  • Tail 0.8 basis points vs. six-month average of 0.2 basis points
  • Bid to cover 2.57X vs. six-month average of 2.49X
  • Directs 19.55% vs. six-month average of 19.6%
  • Indirects 53.4% vs. six-month average of 57.5%
  • Dealers 27.05% vs. six-month average of 22.9%

Auction grade: D

Yields after the auction

  • 2-yr: -1 bp to 4.29%
  • 3-yr: UNCH at 4.33%
  • 5-yr: -2 bps to 4.12%
  • 10-yr: +1 bp to 3.89%
  • 30-yr: +3 bps to 3.87%

Prior auction results:

  • High yield: 3.564%
  • Bid-to-cover: 2.49
  • Indirect bid: 54.5%
  • Direct bid: 21.9%

Average results of previous 12 auctions:

  • High yield: 2.110%
  • Bid-to-cover: 2.45
  • Indirect bid: 57.0%
  • Direct bid: 18.2%

Live From the Pit

From The TradersCommunity US News Desk