MBS LUNCH: 10yr Treasury Auction Results. Reprice for Worse Possible

ALERT ALERT ALERT ALERT ALERT....

LENDERS MAY REPRICE FOR THE WORSE

The 10 year note auction is done. While there was initially a small bounce in "rate sheet influential" MBS prices...the floor has fallen out from under the long end of the yield curve.

9-YR 10-MO NOTES 

YIELDS
    High               3.754 pct
    Median           3.700 pct
    Low                3.618 pct

PRICE/ACCEPTANCES
    Price                   96.900805
    Accepted at high   49.95 pct
    Bid-to-cover ratio  3.00

AMOUNTS TENDERED AND ACCEPTED (dollars)
    Total accepted                        21,000,014,000
    Total public bids tendered        62,919,126,500
    Competitive bids accepted        20,833,507,500
    Noncompetitive bids accepted   66,506,500
    Fed add-ons                           815,373,700
   

    Primary Dealer Tendered         44,168,000,000
    Primary Dealer Accepted          11,182,387,500
    Primary Dealer Hit Rate           25.3% of what they bid on
    Primary Dealer Overall Award   53.2% of issuance

    Direct Bidder Tendered           7,165,000,000
    Direct Bidder Accepted            3,606,000,000
    Direct Bidder Hit Rate             50.3% of what they bid on
    Direct Bidder Overall Award     17.2% of issuance
  
    Indirect Bidder Tendered        11,419,620,000
    Indirect Bidder Accepted         6,045,120,000
    Indirect Bidder Hit Rate          52.9% of what they bid on
    Indirect Bidder Overall Award   28.8% of issuance

The eight auction bid tocover ratio average is 2.76%. A 3.00 btc is great demand.

In the last eight auctions, Dealers have been awarded an average of 51% of the issuance. Last month they took home 56.1% though. While 53.2% is above average its not terrible.

In the last eight auctions, Direct bidders have been awarded an average of 6% of the issuance. Direct bidders are way above average at 17.2% of the issuance.

In the last eight auctions, Indirect bidders have been awarded an average of 43% of the issuance. Clearly 28.8% is WAY BELOW AVERAGE.

Direct bidders took home 11% more than average. Indirect Bidders got 14% less. Not quite offsetting...Dealers picked up the rest of the tab.

Overall this was not a bad auction...it was actually fine! Direct bidders made up for absent indirect bidders. The bid to cover ratio, a measure of auction demand, was well above average. The high yield was right at the 3.75% pivot. What continues to make me really nervous is declining participation from indirect bidders aka foreign central bankers.

The negative reaction is likely a function of the market setting up for tomorrow's 30 year bond auction and dealers distributing this round of supply to accounts....

NEXT EVENT: BEIGE BOOK AT 2PM