Healthy Concession Balances Demand For 7-Year Notes. Market Sideways After Auction

The Treasury has  successfully sold $31 billion 7-year notes. This offering was $1 billion less than the previous six 7-year note auctions.

The bid-to-cover, a measure of auction demand, was 2.88 bids submitted for every one accepted by Tsy. This is an above average btc ratio which indicates demand was firm.

87.7% of the auction was awarded at the high yield of 2.815% vs. the 1pm "When Issued" yield of 2.805%. The modest tail combined with a high bid-to-cover ratio implies demand was strong but only at higher yield levels.

Primary Dealers were awarded 37.5% of the issue....this is near long term averages but below the 5 auction average. Their hit rate was 19.9% of what they bid on.

Direct Bidders took home 11.4%...this is better than the 10 auction average and about average when compared to the most recent 5 auctions. Their hit rate was 32.5% of what they bid on.

Indirects got 51.1% of the competitive bid....this is below the 10 auction average but well-above the 5 auction average. Their hit rate was 78.6% of what they bid on.

Plain and Simple: Eeeeh. Average auction. Demand was there but at higher yields. We're lucky stocks weren't selling today because this issuance would have gone worse if yields were any lower.

Not much difference in market levels after the results were released.

S&Ps are holding steady above 1090 resistance, near the highs of the day, currently +31 at 1092.25. The 10yr note is -1-07 at 3.337%, up 14.4bps today. The 2s/10s curve is 1bp steeper since 1pm and 9bps steeper on the day at 247bps. The FN 4.5 is -0-15 at 101-28. The secondary market current coupon yield is 10bps higher at 4.157%. MBS yield spreads are off their session wides and 3m10y vols are up a few normals at 116, but below recent highs.

The market was able to price in a healthy supply concession thanks to an increased tolerance for risk (stocks) today.  With auction supply now behind us I am looking for benchmark 10-year Treasuries to rally toward a retest of 3.31% as the street distributes new inventory. Our best bet for reprices for the better would be profit taking in stocks followed by a break of the 3.31% pivot and a move back toward 3.25%. This seems a bit ambitious at the moment but the odds will rise as we get closer to the 4pm equity market close.