Solid International Demand in 10-year U.S. Treasury Bond Auction Ahead of CPI

US Treasuries rallied Wednesday with most tenors picking up after the completion of today’s $32 bln 10-yr note reopening, which met excellent demand.  The auction drew a high yield of 3.575%, which tailed the when-issued yield by 0.5 bps. The bid-to-cover ratio (2.53x) and indirect takedown (67.0%) were well above average.  Today’s auction followed yesterday’s impressive 3-yr note sale. The market is showing minimal concern ahead of tomorrow’s release of the US CPI report for December.  Another factor was the U.S. Dollar Index traded just above a seven-month low, ending little changed at 103.23.

The bid to cover 2.53X vs. six-month average of 2.35X, indirect takedown 67.02 percent vs. the six-month average of 62.0%. led the desk to give a B+ rating on the auction.

Auction Highlights

  • Duration: 10 Years
  • Amount:  $32 billion
  • High yield: 3.625%
  • WI level at the time of the auction 3.58%
  • Tail -0.5 bps vs 6 month average of 2.0 bps
  • Bid to cover 2.53X vs. 6 month average of 2.35X
  • Directs (a measure of domestic demand) 17.92% vs. 6 month average of 18.6%
  • Indirects (a measure of international demand) 67.02% vs. 6 month average of 62.0%
  • Dealers (they are stuck with the residual) 15.06% vs. 6 month average of 19.4%

Auction grade: B+

Yields after the auction

  • 2-yr: -1 bp to 4.25%
  • 3-yr: -5 bps to 3.95%
  • 5-yr: -5 bps to 3.69%
  • 10-yr: -5 bps to 3.57%
  • 30-yr: -6 bps to 3.70%

Average results of previous 12 auctions:

  • High yield: 2.915%
  • Bid-to-cover: 2.43
  • Indirect bid: 65.1%
  • Direct bid: 18.1%

Prior auction results:

  • High yield: 3.625%
  • Bid-to-cover: 2.31
  • Indirect bid: 59.4%
  • Direct bid: 18.7%
  • Directs a measure of domestic demand
  • Indirects a measure of international demand
  • Dealers take the balance

Live From the Pit

From The TradersCommunity US News Desk