Underperformance in US 30-year Treasury Bond Auction with SVB Financial Rout Impacting

Treasuries reachied their best levels after today’s $18 bln 30-yr bond auction, which met soft demand, though the interest was better than what was seen at yesterday’s weak 10-yr note reopening. We saw relative strength in shorter tenors today while 10s and 30s underperformed, but also finished in positive territory. Bonds were being bought as we saw significant weakness today with regional banks pacing the selling amid concerns about the capital position of these entities at a time of rising cost of deposits and slowing loan demand. The Fixed Interest desk rated it a C+ after yesterday’s D- on the 10-year auction.

The rot set in after SVB Financial Group announced it would book a $1.8 billion after-tax loss on sales of investments and seek to raise $2.25 billion by a proposed offering of $1.25 billion of its common stock and $500 million of depositary shares. The bond sold were labeled “available for sale” and this realization hit the stock market. SVBI fell to $106.04 ▼ -161.79 (-60.41%) today and dragged the whole banking sector down with it.

The bid-to-cover ratio of 2.35x was above average 2.34x, indirect takedown was 70.72% vs 68.9% average. The desk gave an C+ rating on the auction. Today’s buying 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 3.877%
  • WI level at time of auction 3.871%
  • Tail 0.6 bps vs +0.1 basis points six month average
  • Bid to cover 2.35X vs 2.36X six month average
  • Tail 0.6 bps vs +0.1 basis points six month average
  • Directs (a measure of domestic demand) 19.84% vs 19.1% six month average
  • Indirect (a measure of international demand) 70.72% vs 68.9% six month average
  • Dealers (they take the rest) 9.45% vs. 12.2% six month average

Auction grade: C+

Yields after the auction

  • 2-yr: -12 bps to 4.94%
  • 3-yr: -13 bps to 4.61%
  • 5-yr: -8 bps to 4.25%
  • 10-yr: -4 bps to 3.93%
  • 30-yr: -2 bps to 3.86%

Prior auction results:

  • High yield: 3.686%
  • Bid-to-cover: 2.25
  • Indirect bid: 65.2%
  • Direct bid: 18.9%

Yields ahead of the auction

  • 2-yr: -10 bps to 4.96%
  • 3-yr: -10 bps to 4.64%
  • 5-yr: -6 bps to 4.27%
  • 10-yr: -3 bps to 3.95%
  • 30-yr: UNCH at 3.87%

Average results of previous 12 auctions:

  • High yield: 3.401%
  • Bid-to-cover: 2.37
  • Indirect bid: 69.2%
  • Direct bid: 18.2%

Live From the Pit

From The TradersCommunity US News Desk