Reprices Reported After Apathetic 10 Year Note Auction

Treasury just auctioned $24 billion 10 year notes.

The bid to cover ratio, a measure of auction demand, was 2.80 bids submitted for every 1 accepted by Treasury.  This is well below average and the lowest BTC ratio since the February refunding.

61% of the issue was awarded at a high yield of 2.636%. This was below the 1pm "When Issued" yield of 2.645%.  Wow that was an aggressive supply concession! The WI rose more than 10bps in a five hour period.

Primary dealers added $8.1billion in 10yr inventory or 34.0% of the competitive bid. This takedown is well-below both short and long term averages. Dealers also weren't very aggressive with a 20.0% hit rate.

Directs were awarded 9.4% if the issue or $2.2 billion. This is a below average award to directs. Just like dealers, directs were not very aggressive bidders with a 24.3% hit rate.

Indirects really stole the show as the star performer. They took home $13.5bn of the $23.9bn in competitive bids or a whopping 56.7% of the refunding. This is well above both short and long term averages. Indirects grabbed 78.3% of what they wanted...that is aggressive bidding!

Plain and Simple: the bond market really laid the auction concessions on thick today. Yet auction demand wasn't impressive. This is disappointing but not a big surprise considering the quiet/illiquid trading environment. Indirects were the biggest buyers while dealers and directs were both apathetic toward the issue. My biggest concern heading into this auction was that indirect bidders would shun our fundraising attempts, clearly that is not the case today. 

Market Reaction...

CHOPPY!

There was an obvious increase in trading activity immediately after the auction results were released. The knee jerk move was higher in price/lower in yield but another spike lower in price/higher in yield was quick to follow. This implies short covering was the primary motivation for the brief post-auction rally. Once that passed, trading activity slowed considerably and benchmark yields moved higher again.

The 5yr note is -16/32 at 100-03 yielding 1.229%. The 7yr note is -19/32 at 100-02 yielding 1.869%. The 10yr note is -20/32 at 99-30 yielding 2.632%. 10s have traveled as far as the 50% fibonacci retracement, I still do not rule out a retest of 2.67%. READ MORE

The December delivery FNCL 3.5 is -10/32 at 100-03 yielding 3.494% and the FNCL 4.0 is -10/32 at 102-25 yielding 3.578%. REPRICES FOR THE WORSE HAVE BEEN REPORTED. READ MORE ABOUT WHY

OUR BENCHMARK GUIDANCE GIVERS ARE BID WANTED IN AN ILLIQUID TRADING ENVIRONMENT.  Day traders are leading this move higher just like they did in the weeks leading up to the FOMC meeting. This is not a result of a massive liquidation by the herd of overcrowded longs in the 5 to 10yr sector of the curve.

Nobody panic. This is what I was talking about all morning on the MBS Commentary blog. I even explained to consumers last night that this was a likely outcome after the Employment Report ahead of more TSY supply.  We've still got to deal with 30s tomorrow, this is a reason for traders to wait for lower prices before bargain buying.  After that the Fed releases their QEII purchase schedule at 2pm. That should be prime motivation to write a few buy tickets...