US 10-yr Treasuries back end of the curve outperforming the front end, weighed down by a hotter-than-expected Producer Price Index for September. The 2s10s inversion widened to 41 bps from 33 bps. The completion of today’s $35 billion 10-yr note auction at the highest yield at auction since 2007, this was as expected given it was priced in the when-issued market price beforehand. Thereopening saw high yield of 4.61% that tailed the when-issued yield of 4.592%. Dollar demand, however, was reasonably good with 2.50 bid-to-cover ratio exceeding prior 12-auction average of 2.43. Indirect takedown was below average (60.3% vs 64.8% average). The desk gave a D+ rating on the auction.
Notably yesterday the $46 billion 3-yr note auction saw the high-yield of 4.74% tail the when-issued yield of 4.723% by almost two basis points. Securities across the curve saw some leakage after the auction results. the shorter date in line with the bond market risk profile. We have a $20 billion 30-yr bond reopening on Thursday.
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.
The bid to cover 2.50X vs. 12-month average of 2.43X, indirect takedown 60.3% versus 12-month average of 65.1%. The desk gave a D+ rating on the auction.
Auction Highlights
- Duration: 10 Years
- Amount: $35 billion
- High yield: 4.61%
- When-Issued level at the time of the auction 4.592%
- No Tail i.e., 0.09 basis points versus six-month average of 1.4 basis points
- Bid to cover 2.50X vs 12-month average of 2.43X
- Directs 20.9% vs 12-month average of 19.2%
- Indirects 60.3% versus 12-month average of 65.1%
- Dealers 18.8% versus 12-month average of 15.7%
Auction grade: D+
- Directs a measure of domestic demand
- Indirects a measure of international demand
- Dealers take the balance
Yields after the Auction.
- 2-yr: +1 bp to 5.00%
- 3-yr: unch at 4.77%
- 5-yr: -1 bp to 4.61%
- 10-yr: -7 bps to 4.59%
- 30-yr: -10 bps to 4.73%
Yields Before the Auction.
- 2-yr: +2 bps to 5.01%
- 3-yr: -1 bp to 4.69%
- 5-yr: +1 bp to 4.42%
- 10-yr: UNCH at 4.29%
- 30-yr: UNCH at 4.37%
Average results of previous 12 auctions:
- High yield: 3.729%
- Bid-to-cover: 2.42
- Indirect bid: 64.8%
- Direct bid: 19.1%
Prior auction results:
- High yield: 3.999%
- Bid-to-cover: 2.56
- Indirect bid: 72.2%
- Direct bid: 18.3%
- 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