Record Foreign Demand at US Treasury Bond Reopening Completes Strong Auction Week

U.S. Treasuries were led higher by the long bond building on its gain after the completion of this week’s third extremely strong auction. The desk gave an A- rating on the auction. Today’s $18 bln 30-yr bond reopening stopped through by 2.4 bps and benefited from record foreign demand with Japanese investors looking outward after the BoJ shift. It followed these week’s $32 bln 10-yr note reopening, which met excellent demand and the impressive 3-yr note sale. Today’s sale followed the release of the CPI report for December, which was cooler than expected at the headline level, but still showed accelerating inflation in the services sector.

The US dollar sold off against other major currencies, the USDJPY falling over 2.0% after it was reported that the Bank of Japan will review the side effects of its aggressive easing at next week’s policy meeting. The U.S. Dollar Index (DXY) fell 0.9% to 102.31.

Today’s $18 bln 30-yr bond -2.4 basis point indicative of strong international demand and soft domestic. The desk gave an A- rating on the auction.

  • The domestic demand was below its six-month average indicative of softer domestic demand
  • International demand (indirect) was also comfortably above the six-month average (a record)
  • Primary dealers were left with just under 10% versus normal around 11.6%

Auction Highlights

  • Duration: 30 Years
  • Amount:  $18 billion
  • High yield 3.585%
  • WI 3.609%
  • Tail -2.4 bps vs six-month average of -0.2 basis points
  • Bid to cover 2.45X versus six-month average of 2.37X
  • Directs (measure of domestic demand) 16.33% vs. six-month average of 19.0%
  • Indirects (measure of international demand) 74.63% versus six-month average of 69.4%
  • Primary Dealers 9.04% versus six-month average of 11.6%

Auction grade: A-

Yields after the auction

  • 2-yr: -11 bps to 4.13%
  • 3-yr: -12 bps to 3.81%
  • 5-yr: -12 bps to 3.55%
  • 10-yr: -11 bps to 3.45%
  • 30-yr: -10 bps to 3.58%

Prior auction results:

  • High yield: 3.513%
  • Bid-to-cover: 2.25
  • Indirect bid: 61.6%
  • Direct bid: 23.1%

Average results of previous 12 auctions:

  • High yield: 3.188%
  • Bid-to-cover: 2.38
  • Indirect bid: 69.2%
  • Direct bid: 18.1%

Live From the Pit

From The TradersCommunity US News Desk