MBS LUNCH: TSYs Better Bid After Auction

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The Treasury Department just auctioned off a record $42 billion 2 yr notes (second auction at this amount). 92% was awarded at the high yield of 1.119%.

This is a 1.2 basis point tail as the "When Issued"  2 yr note was trading at 1.107% at 1pm. The bid to cover ratio, a measure of demand, was 2.68% vs. the 2.90% average of the last four auctions.  Indirects took 49.4% vs. the 46.2% recent average while dealers were awarded 47.1% vs. the 50% average of the previous four auctions.

Dealers took home 24% of what they bid on, lower than 30% average, and indirect bidders were awarded 73% of what they bid on....higher than 67% four auction average.

The bond market was a bit indecisive following the release of the results, however as the dust settled the 10 yr note has rallied while stocks have retraced a portion of their intraday gains.

The  rate sheet influential FN 4.5 MBS coupon is trading near the highs of the day. If prices approach 100-10 you may be awarded a reprice for the better...but dont get your hopes up...our old friend MR.PARNERTIA (Negative Convexity) isnt likely to allow any gains to last for long (unless TSYs keep on rallying)...

MBS, TSY, LIBOR QUOTE