Strong 30-year Treasury Bond Auction Completes Week’s Offerings Ahead of FOMC

The U.S. Treasury completed this week’s note and bond auction offerings today. Following weak 3- and 10-yr notes auctions Monday we saw a strong long bond auction with a tail of -0.3 basis points versus the 6-month average of 2.1 basis points and much stronger than last month’s dismal sale which saw a 5.3 basis point tail. The Fixed Interest desk rated it an A. The auction came after November Consumer Price release that was in-line with expectations, though the sticky nature of core CPI concerned. Notably, the 2-yr note yield, which is most sensitive to changes in the fed funds rate, was the laggard of the Treasury group, settling near its worst levels of the day (4.74%) after scraping 4.64% in the morning session.

The 30-yr bond auction and sliding oil prices ($68.62, -2.73, -3.8%) helped in front of Wednesday’s FOMC meeting, which will include a new policy directive, an updated Summary of Economic Projections, and Fed Chair Powell’s press conference. The probability of a 25-basis points rate cut in March stands at 41.8%, versus 43.2% yesterday, while the probability of a 25-basis points rate cut in May stands at 74.6%, versus 74.9% yesterday, according to the CME FedWatch Tool. The U.S. Dollar Index was down 0.2% to 103.84 but rebounded from 103.58 when the CPI report was released.

Auction Highlights

  • Duration: 30 Years
  • Amount:  $24 billion
  • High yield 4.344%
  • WI level at time of auction (When-Issued: 4.347%)
  • Tail -0.3 basis points versus 6-month average of 2.1 basis points
  • Bid to cover 2.43X vs 2.39X 12-month average
  • Directs (a measure of domestic demand) 15.2% vs 19.2% 12-month average
  • Indirect (a measure of international demand) 68.5% vs 68.6% 12-month average
  • Dealers (they take the rest) 17.3% vs. 11.7% 12-month average

Auction grade: A

Yields after the auction.

  • 2-yr: +1 bp to 4.74%
  • 3-yr: -4 bps to 4.44%
  • 5-yr: -2 bps to 4.23%
  • 10-yr: -4 bps to 4.20%
  • 30-yr: -2 bps to 4.31%

The Auction came after the November CPI release for the U.S.

Yields ahead of the auction.

  • 2-yr: -1 bp to 4.72%
  • 3-yr: -5 bps to 4.43%
  • 5-yr: -1 bp to 4.24%
  • 10-yr: -1 bp to 4.23%
  • 30-yr: unch at 4.33%

Prior auction results:

  • High yield: 4.769%
  • Bid-to-cover: 2.24
  • Indirect bid: 60.1%
  • Direct bid: 15.2%

Average results of previous 12 auctions:

  • High yield: 4.002%
  • Bid-to-cover: 2.38
  • Indirect bid: 67.8%
  • Direct bid: 18.7%

This Week’s Other Treasury Auctions

  • Monday: 13- and 26-week bills, $50 bln 3-yr Treasury note auction results at 11:30 ET and $37 bln 10-yr Treasury note reopening results at 13:00 ET
  • Tuesday:  52-Week 42-day cash management bills, $21 bln 30-yr Treasury bond reopening results at 13:00 ET; (NB November Treasury Budget (prior -$66.6 bln) at 14:00 ET)
  • Wednesday: 4- and 8-week bills; 17-week bills;
  • Thursday: 4- and 8-week bills

Live From the Pit

From The TradersCommunity US News Desk