U.S. 10-year Bond Auction Softer Than Solid 3-year Sale This Supply Week

U.S. Treasuries faced renewed selling to fresh lows after the $37billion 10-yr note reopening, which met weaker demand than yesterday’s solid 3-yr note sale. The 10-yr note auction drew a high yield of 4.024%, which tailed the when issued yield by 0.5 bps. Notably the sale drew the fourth consecutive tail in 10-year notes, that tenor has not garnered a stop-through since February 2023. The bid-to-cover ratio (2.56x) was a tad above average (2.48x), but indirect takedown (66.1%) was weaker than average (66.8%), reflecting soft foreign demand.

We saw squaring ahead of tomorrow’s release of December CPI (consensus 0.2%; prior 0.1%), Core CPI (consensus 0.2%; prior 0.3%), The desk gave a C rating on the auction. The U.S. Dollar Index slipped 0.2% to 102.37, turning slightly negative for the week. Crude oil gave back its early gain after the release of a bearish inventory report from the EIA.

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.

Auction Highlights

  • Duration: 10 Years
  • Amount:  $37 billion
  • High yield: 4.024%
  • When-Issued level at the time of the auction 4.019%
  • Tailed the when issued yield by 0.5 bps.
  • Bid to cover 2.56X vs 12-month average of 2.48X
  • Directs 18.7% vs 12-month average of 18.8%
  • Indirects 66.1% versus 12-month average of 66.8%
  • Dealers 15.2% versus 12-month average of 14.4%

Auction grade: C

  • Directs a measure of domestic demand
  • Indirects a measure of international demand
  • Dealers take the balance

Yields after the Auction.

  • 2-yr: -3 bps to 4.35%
  • 3-yr: -3 bps to 4.11%
  • 5-yr: UNCH at 3.98%
  • 10-yr: +1 bp to 4.03%
  • 30-yr: +2 bps to 4.20%

Yields Before the Auction.

  • 2-yr: -2 bps to 4.36%
  • 3-yr: -5 bps to 4.09%
  • 5-yr: -2 bps to 3.96%
  • 10-yr: -1 bp to 4.01%
  • 30-yr: UNCH at 4.19%

Average results of previous 12 auctions:

  • High yield: 3.953%
  • Bid-to-cover: 2.48
  • Indirect bid: 66.8%
  • Direct bid: 18.8%

Prior auction results:

  • High yield: 4.296%
  • Bid-to-cover: 2.53
  • Indirect bid: 63.8%
  • Direct bid: 18.9%
  • Directs a measure of domestic demand
  • Indirects a measure of international demand
  • Dealers take the balance

Bond auctions week ahead:

This week will bring some new supply.

  • Monday: $75 billion 13-week bills, $68 billion 26-week bills,
  • Tuesday: $70 billion 42-day cash management bills, $52 bln 3-yr Treasury note auction results at 13:00 ET
  • Wednesday: $56 billion 17-week bills; $37 bln 10-yr Treasury note reopening results at 13:00 ET
  • Thursday: $80 billion 4- and 8-week bills;

Live From the Pit

From The TradersCommunity US News Desk