10 Year Treasury Note Auction Results and Market Reactions
The Treasury has successfully auctioned $24 billion, 5/15/2020 maturity 10 year notes. This is $1 billion less than the previous refunding.
The bid to cover ratio, a measure of auction demand, was 2.96 bids submitted for every one accepted by the Treasury. This is about average when compared to the past ten auctions but slightly below the five auction average of 3.09.
Bidding stopped out at a high yield of 3.548%. This was just below the 1pm "when issued" bid of 3.551% which implies investors were aggressively seeking this debt.
Primary Dealers, aka the street, took 33.2% of the issue. This is below both the five auction and ten auction averages of 50.2% and 48.4% respectively. This is a positive...we do not want the street taking down higher percentages of the auction because they will need to get rid of excess supply...and the market will not let dealers do so without a cost.
Direct bidders, aka domestic fund managers like Vanguard and PIMCO, were awarded 24.9% of the re-opening. This is WAY above the ten auction average of 10.0% and the five auction average of 14.6% and the sixth consecutive 10 year note auction where direct bidder participation was WELL ABOVE historical averages.
Indirect bidders were awarded 41.9% of the auction. This is very close the to ten auction average of 41.7 and well above the five auction average of 35.0% of total competitive bids.
In total, non-dealers (indirects and directs) took home 66.8% of the auction. That is WAY BETTER than recent averages and an indicator of STRONG AUCTION DEMAND
Plain and Simple: Direct bidders continue to show up as big U.S. debt supporters, indirect bidders were aggressive, taking home almost 70% of what they bid on (hit rate), and primary dealers didn't have to do much heavy lifting. Auction demand was strong at current market yields.
The reaction in market implies the auction was a non-event.
The S&P is stuck in a range with the 50 day moving average providing firm overhead resistance.
The 2s/10s yield curve is unchanged at 270bps. 10yr notes are holding steady near their intra-session high yields.
The 3.625% coupon bearing 10 year TSY note is -0-07 at 100-17 at 3.558%. The range continues to consolidate as traders await guidance from related markets. Trading volume is below average and open interest is down today...this implies short term day trading strategies are at work in the bond market.
Rate sheet influential MBS coupons are hovering just above their lowest price prints of the day in below average trading flows, but are holding above reprice for the worse territory.
The FN 4.5 is -0-02 at 101-03 yielding 4.377%. The secondary market current coupon is 1bps higher today at 4.354%. Compared to benchmarks, the current coupon is being outperformed. The CC yield is +79.8bps over the 10 year TSY note yield and +76.2 bps over the 10 year interest rate swap. "Rate sheet influential" MBS coupons are playing follow the leader with benchmark big brothers...if TSYs do rally and yield spreads widen, expect fast money accounts to buy the "basis" and keep the 70-80bps spread level range trade in play.
No change in guidance from the OPEN.....markets are still waiting around for some form of motivation that will help build sustainable momentum in one direction or the other. Until then we continue to chop around the recent range.
NEXT EVENT: Treasury Budget at 2pm