Safe Haven Buying at 3-Year Treasury Bond Auction with US Mid Term Elections and Cryptocurrency Collapse

Treasuries hit fresh highs after the completion of today’s $40 billion 3-yr note auction, which precedes tomorrow’s $32 billion 10-yr note reopening. There has been a strong safe haven bid today ahead of the US midterm election and collapse of FTT and FTX which has seen Bitcoin down 15% though 2021 lows. Foreign buyers (62.2%) were higher than expected. The sale drew a high yield of 4.605% which stopped through the when-issued yield by 1.2 bps while the bid-to-cover ratio (2.57x) was above average.

The desk gave a B+ rating on the auction. The S&P 500 and Nasdaq 100 were near the high for the day around the auction results but quickly collapsed as the FTX crypto saga worsened.

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 indirect takedown (62.2%) were above average.  The desk gave a B+ rating on the auction.

  • The domestic demand was below its twelve-month average indicative of softer domestic demand
  • International demand (indirect) was comfortably above the six-month average

Auction Highlights

  • Duration: 3 Years
  • Amount:  $40 billion
  • High yield 4.605%
  • WI level 4.617%
  • Tail 1.2 basis points vs. six-month average of 0.2 basis points
  • Bid to cover 2.57X vs. six-month average of 2.49X
  • Directs 17.00% vs. six-month average of 19.6%
  • Indirects 62.2% vs. six-month average of 57.5%
  • Dealers 20.8% vs. six-month average of 22.9%

Auction grade: B+

Yields after the auction

  • 2-yr: -6 bps to 4.67%
  • 3-yr: -5 bps to 4.59%
  • 5-yr: -8 bps to 4.31%
  • 10-yr: -9 bps to 4.12%
  • 30-yr: -7 bps to 4.24%

Prior auction results:

  • High yield: 4.318%
  • Bid-to-cover: 2.57
  • Indirect bid: 53.4%
  • Direct bid: 19.6%

Average results of previous 12 auctions:

  • High yield: 2.417%
  • Bid-to-cover: 2.47
  • Indirect bid: 57.8%
  • Direct bid: 18.2%

Live From the Pit

From The TradersCommunity US News Desk