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
Live From the Pit
From The TradersCommunity US News Desk