Meek Demand Seen in Long Bond Auction Despite Tamer CPI Report

U.S. Treasuries of all tenors backpedaled from session highs that were reached around 9:00 ET. after the tamer than expected CPI report as the market positioned ahead of tomorrow’s FOMC meeting. The long bond gave back most of its post-CPI advance after the completion of today’s $18 bln 30-yr bond reopening, which met underwhelming demand. It was a day of severe price reversal; equities have given back the bulk of their gains with the S&P 500 narrowing its advance to 0.4% while the Nasdaq (+0.5%) remains ahead. The Fixed Interest desk rated it a D after yesterday’s D- on the 10-year auction.

The bid-to-cover ratio of 2.25x was below average 2.33x, indirect takedown was 61.6% vs 66.6% average. The desk gave an D rating on the auction. Today’s buying after the weaker than expected inflation report for November suggests the bond market is already looking past inflation-related headlines to an expected deceleration in growth also.

Auction Highlights

  • Duration: 30 Years
  • Amount:  $18 billion
  • High yield 3.513%
  • WI level at time of auction 3.482%
  • Tail -3.3 basis points
  • Bid-Cover Ratio: 2.25X vs six-month average of 2.33X
  • Direct Accepted: 23.1% vs six-month average of 17.6%
  • Indirect Accepted: 61.6% vs. six-month average of 66.6
  • Dealers 15.3% vs six-month average of 15.8%

Auction grade: D

Yields after the auction

  • 2-yr: -20 bps to 4.19%
  • 3-yr: -22 bps to 3.92%
  • 5-yr: -16 bps to 3.65%
  • 10-yr: -11 bps to 3.50%
  • 30-yr: -6 bps to 3.51%

Prior auction results:

  • High yield: 4.080%
  • Bid-to-cover: 2.42
  • Indirect bid: 69.9%
  • Direct bid: 20.4%

Yields ahead of the auction

  • 2-yr: -25 bps to 4.14%
    3-yr: -25 bps to 4.14%
    5-yr: -20 bps to 3.60%
    10-yr: -17 bps to 3.44%
    30-yr: -12 bps to 3.46%

Average results of previous 12 auctions:

  • High yield: 3.068%
  • Bid-to-cover: 2.39
  • Indirect bid: 69.5%
  • Direct bid: 17.6%

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From The TradersCommunity US News Desk