Strong Demand at US 30-year Treasury Bond Auction Following May CPI

U.S. Treasuries broadly lower note after giving back post-May CPI gains which showed a cooler than expected 0.1% v’s consensus 0.2% and in-line 0.4% m/m increase in core CPI. Treasuries saw some buying after the completion of today’s $18 bln 30-yr bond reopening. The sale met strong demand, as the high yield (3.908%) stopped through the when-issued yield by 1.1 bps. The bid-to-cover ratio (2.52x) and indirect takedown (72.9%) were above average. However, selling on the 5-yr note and the 10-yr note continuing even through a strong 30-yr bond auction, lifted yields on 5s and shorter tenors to their highest levels since early March, even though funds futures market sees just a 5.8% implied likelihood of a rate hike, down from 20.9% yesterday.

Stocks continued their rally to their highs with the S&P 500 up 0.7% while the Russell 2000 (+1.4%) outperformed by a solid margin. The Fixed Interest desk rated it an A after yesterday’s completed $35 bln 10-yr note sale and $40 bln 3-yr note sale. 

The bid-to-cover ratio of 2.52X vs 2.37X 12-month average, indirect takedown was 72.9% vs 69.8% 12-month average. The desk gave an A rating on the auction. Today’s buying is two months after the Collapse of banking shares suggests the bond market is already looking past inflation-related headlines to capital preservation and an expected deceleration in growth.

Auction Highlights

  • Duration: 30 Years
  • Amount:  $18 billion
  • High yield 3.908% 
  • WI level at time of auction 3.756%
  • Stopped through WI yield by 1.1 bps vs +0.5 basis points 6-month average
  • Bid to cover 2.52X vs 2.37X 12-month average
  • Directs (a measure of domestic demand) 18.1% vs 18.6% 12-month average
  • Indirect (a measure of international demand) 72.9% vs 69.8% 12-month average
  • Dealers (they take the rest) 9.00% vs. 11.6% 12-month average

Auction grade: A

Yields after the auction (Updated at market close).

  • 2-yr: +11 bps to 4.70%
  • 3-yr: +7 bps to 4.30%
  • 5-yr: +10 bps to 4.02%
  • 10-yr: +7 bps to 3.84%
  • 30-yr: +3 bps to 3.94%

The Auction came after the May CPI releases for the U.S.

Yields ahead of the auction.

  • 2-yr: -2 bps to 4.57%
  • 3-yr: -3 bps to 4.20%
  • 5-yr: -1 bp to 3.91%
  • 10-yr: +1 bp to 3.77%
  • 30-yr: +1 bp to 3.92%

Prior auction results:

  • High yield: 3.741%
  • Bid-to-cover: 2.43
  • Indirect bid: 72.4%
  • Direct bid: 17.4%

Average results of previous 12 auctions:

  • High yield: 3.583%
  • Bid-to-cover: 2.37
  • Indirect bid: 69.8%
  • Direct bid: 18.6%

This Week’s Other Treasury Auctions

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From The TradersCommunity US News Desk