2 Year Note Auction Results and Reaction
The Treasury has successfully auctioned $44 billion 2 year notes.
The bid to cover ratio, a measure of auction demand, was 3.00 bids submitted for every one accepted by the Treasury. This is below the ten auction average of 3.10 and the five auction average of 3.23.
Bidding stopped out at a high yield of 1.00%. This is slightly above the 1pm "when issued" bid.
Primary Dealers, aka the street, took 50.8% of the issue. This is well above the ten auction average of 43.4% of the total auction award and above the five auction average of 42.0%.This is a negative, we do not want the street taking down higher percentages of the auction because they will need to get rid of unexpected supply...and they will not do it at cost.
Direct bidders, aka domestic fund managers like Vanguard and PIMCO, were awarded 13.7% of the issue. This is above the ten auction average of 9.45% but below the five auction average of 13.9% of total auction.
After several healthy 2 yr note take downs over the past 9 months, Indirect bidders were awarded a paltry 34.4% of the auction. This is well below both the five and ten auction averages of 47.1% and 44.1% respectively. Only the July 28, 2009 recorded a lower indirect award.
Plain and Simple: Direct bidders and Primary Dealers offset a big reduction in indirect demand. Given the big concession that had been priced into the 2 year note over the past three sessions, I was expecting to see a better turnout. It makes me nervous that Dealers had to step up and take down the majority of supply...we would rather have the debt in the hands of direct and indirect accounts instead of dealers who need to distribute now.
Here is a recap...
2-YEAR NOTES
YIELDS
High 1.000 pct
Median 0.960 pct
Low 0.891 pct
PRICE/ACCEPTANCES
Price 100.000000
Accepted at high 56.32 pct
Bid-to-cover ratio 3.00
AMOUNTS TENDERED AND ACCEPTED (dollars)
Total accepted 44,000,140,900
Total public bids tendered 132,127,108,900
Competitive bids accepted 43,517,432,000
Noncompetitive bids accepted 457,708,900
Fed add-ons 1,488,393,700
Primary Dealer Tendered 92,660,000,000
Primary Dealer Accepted 22,374,000,000
Primary Dealer Hit Rate 24.1% of their bid
Primary Dealer Award 50.9% of issuance
Direct Bidder Tendered 16,129,000,000
Direct Bidder Accepted 6,007,064,000
Direct Bidder Hit Rate 37.2% of their bid
Direct Bidder Award 13.7% of issuance
Indirect Bidder Tendered 22,855,400,000
Indirect Bidder Accepted 15,136,368,000
Indirect Bidder Hit Rate 66.2% of their bid
Indirect Bidder Award 34.4% of issuance
NOTE DETAILS
Issued date March 31, 2010
Maturity date March 31, 2012
CUSIP number 912828MU1
The 3.625% coupon bearing 10 year note is 0-01 at 99-21 yielding 3.666%....right in the middle of the two day range. Yawn! Volume is just has bad as yesterday!
The "rate sheet influential" FN 4.5 MBS coupons initially fell from 101-05 to 101-02...it wasn't long before prices moved back into the pre-auction range though. Trading flows are slow in the mortgage market too...its like everyone is waiting around for something to happen.
REPRICES FOR THE WORSE BETWEEN 100-30 and 100-28. REPRICES FOR THE BETTER AROUND 101-09. Of course there is always the PriceLeader who has been known to recall rate sheets well in advance of other lenders. If you are sending a file to them and your float boat is nearing its destination, you might want to watch for a reprice around 101-00.
The S&P is up 0.23% to 1168. The Dow is 0.53% higher at 10,844, and the NASDAQ is +0.4% at 2404. In more relevant industry news, PMI Group, the mortgage insurance group is up 16.61% today after Freddie Mac approved them as a direct issuer of mortgage guaranty insurance. FRE's approval allows PMI Mortgage Assurance Co to write new mortgage insurance business in certain states if the main operating unit, PMI Mortgage Insurance Co , cannot do so because of its inability to meet regulatory capital requirements. READ MORE
Regardless of gains in equities nothing seems to be moving money in the rates market at the moment. The 2s10s yield curve is unchanged at 270bps after the auction. In fact...yields are pretty much unchanged across the curve. Check it out...
This complacency makes me nervous.