Strong International Demand at 3-Year Treasury Bond Auction with High Yield 4.534%

The week’s auctions started off with solid demand for the $40 billion 3-year note sale. The 5-yr note and longer tenors climbed to fresh highs while shorter tenors are still behind after two days of outperformance following the completion of the auction.  The sale drew a high yield of 4.534%, which stopped through the when-issued yield by 0.2 bps while the bid-to-cover ratio (2.88x) and indirect takedown (69.4%) were above average. The desk gave an A rating on the auction. Equities trade barely in the green as the market awaits the US CPI release tomorrow..

The U.S. Treasury is working to replenish its General Account with an estimated $1 trillion of Treasury issuance due to the debt ceiling impasse. Overall, the sales have been absorbed well.

Today’s $40 bln bid-to-cover ratio (2.88x) and indirect takedown (69.4%) were above average.  The desk gave a A rating on the auction.

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

Auction Highlights

  • Duration: 3 Years
  • Amount:  $40 billion
  • High yield: 4.534%
  • When-Issued: 4.536%
  • Stopped through the when-issued yield by 0.2 bps
  • Bid to cover 2.88X times versus 12-month average of 2.60X
  • Dealers 10.80% versus 21.1% 12-month average of 19.2%
  • Directs 19.8% versus 12-month average of 18.9%
  • Indirects 69.4% versus 12-month average of 61.9%

Auction grade: A

Yields After The Auction

  • 2-yr: +1 bp to 4.86%
  • 3-yr: -2 bps to 3.54%
  • 5-yr: -2 bps to 4.23%
  • 10-yr: -4 bps to 3.97%
  • 30-yr: -4 bps to 4.01%

Yields Before the Auction.

  • 2-yr: -2 bps to 4.60%
  • 3-yr: -1 bp to 4.25%
  • 5-yr: +2 bps to 3.94%
  • 10-yr: +4 bps to 3.78%
  • 30-yr: +4 bps to 3.93%

Prior Auction Results:

  • High yield: 4.202%
  • Bid-to-cover: 2.70
  • Indirect bid: 61.5%
  • Direct bid: 21.7%

Average results of previous 12 auctions:

  • High yield: 3.939%
  • Bid-to-cover: 2.60
  • Indirect bid: 61.9%
  • Direct bid: 18.9%
  • Directs a measure of domestic demand.
  • Indirects a measure of international demand
  • Dealers take the balance.
Bond Traders Weekly Outlook: Higher for Longer Threatens Long Duration Portfolios

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