Weak 10-year U.S. Treasury Bond Auction with Rate Hike Expectations Higher

US Treasuries longer tenors turned negative after today’s weak $32 bln 10-yr note reopening which bled into post-auction selling. This sent all tenors to lows. shortly after the completion of today’s $32 bln 10-yr note reopening, which met weak demand with a large tail of the 2.7 basis points versus the WI level. Domestic demand nevertheless was higher than the six-month average at nearly 20% versus 18.5%. Fed Chairman Powell continued his testimony on Capitol Hill with rate hike expectations now showing a 77.9% implied likelihood of a 50-bps rate increase in two weeks, up from 69.8% yesterday. The auction garnered a D rating across. Notably yesterday’s $40 bln 3-yr note sale found solid interest, the shorter date in line with the bond market risk profile.

The bid to cover 2.35X vs. six-month average of 2.41X, indirect takedown 62.29 percent vs. the six-month average of 63.8%. The desk gave a D rating on the auction.

Auction Highlights

  • Duration: 10 Years
  • Amount:  $32 billion
  • High yield: 3.985%
  • When-Issued level at the time of the auction 3.958%
  • Tail 2.7 bps versus a six-month average of 1.3 basis point
  • Bid to cover 2.35X versus a six month average of 2.41X
  • Directs 19.98% versus a six month average of 18.5%
  • Indirects 62.29% versus segment average of 63.8
  • Dealers 17.73% versus six month average of 17.7%

Auction grade: D-

Yields after the auction

  • 2-yr: +5 bps to 5.06%
  • 3-yr: +6 bps to 4.73%
  • 5-yr: +3 bps to 4.35%
  • 10-yr: +2 bps to 3.99%
  • 30-yr: +1 bp to 3.90%

Average results of previous 12 auctions:

  • High yield: 3.212%
  • Bid-to-cover: 2.43
  • Indirect bid: 65.4%
  • Direct bid: 18.1%

Prior auction results:

  • High yield: 3.613%
  • Bid-to-cover: 2.66
  • Indirect bid:79.5%
  • Direct bid: 15.2%
  • 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