International Buyers Return to 3-year Treasury Note Auction Ahead of CPI

U.S. Treasuries traded below their session highs after impulse buying in reaction to the just-completed $52 billion 3-year note auction which met solid demand. The auction drew a high yield of 4.105% (When-Issued: 4.116%) which stepped through by 1.1 basis points. The bid-to-cover ratio (2.67x) was under average (2.69x), but indirect takedown (65.3%) was comfortably above average (63.4%), reflecting strong interest by foreign buyers. Tomorrow will feature a $37 billion 10-yr note reopening. The desk gave a B rating on the auction.

The S&P 500 (-0.1%) and Nasdaq (+0.1%) are little changed after overcoming their initial losses while the Dow (-0.5%) and Russell 2000 (-0.8%) remain closer to their worst levels of the day.

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:  $52 billion
  • High yield:  4.105%
  • When-Issued level at the time of the auction 4.116%
  • Stepped through when-issued yield by a 1.1 basis points.
  • Bid to cover 2.67X vs 12-month average of 2.69X
  • Directs 21.7% vs 12-month average of 19.3%
  • Indirects 65.3% versus 12-month average of 63.4%
  • Dealers 13.0% versus 12-month average of 17.3%

Auction grade: B

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

Yields after the Auction.

  • 2-yr: +1 bp to 4.36%
  • 3-yr: +2 bps to 4.13%
  • 5-yr: +2 bps to 3.97%
  • 10-yr: +2 bps to 4.02%
  • 30-yr: +1 bp to 4.19%

Yields Before the Auction.

  • 2-yr: UNCH at 4.35%
  • 3-yr: UNCH at 4.11%
  • 5-yr: +1 bp to 3.96%
  • 10-yr: UNCH at 4.00%
  • 30-yr: -1 bp to 4.17%

Average results of previous 12 auctions:

  • High yield: 4.326%
  • Bid-to-cover: 2.69
  • Indirect bid: 63.4%
  • Direct bid: 19.3%

Prior auction results:

  • High yield: 4.490%
  • Bid-to-cover: 2.42
  • Indirect bid: 52.1%
  • Direct bid: 21.7%
  • 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: $75 billion 13-week bills, $68 billion 26-week bills,
  • Tuesday: $70 billion 42-day cash management bills, $52 bln 3-yr Treasury note auction results at 13:00 ET
  • Wednesday: $56 billion 17-week bills; $37 bln 10-yr Treasury note reopening results at 13:00 ET
  • Thursday: $80 billion 4- and 8-week bills;

Live From the Pit

From The TradersCommunity US News Desk