Average Bond Auction Leaves MBS in Slightly Better Shape

Treasury just sold $24 billion 4.75% coupon bearing 30 year bonds. No headline observations can be made on this one. It was a pretty average auction. The non-dealer award totaled 51.0%. Indirects accounted for an above average 43.1% of that award while directs took down the remaining 7.9%. Indirect bidders did ramp up their participation in terms of total bids tendered ($9.4bn vs. previous $6.9bn) and their award was a bit bigger than usual, but demand was not earth shattering by any means.

At 2.51 bids submitted for every 1 accepted by Treasury, the bid to cover ratio was barely below both the five and ten auction averages. Buyers weren't willing to pay up for this issue either. The auction "high yield" was 1.10 basis points above the 1pm "When Issued" yield, which is the bond markets forward pricing mechanism for future Treasury issues. This implies investors were more willing to buy these bonds at lower prices and higher yields, as dictated by apathetic demand. The new long bond as priced the risk free 30 year "par value" coupon at 4.75% vs. the previous 4.25% coupon.

Today's auction didn't need to do any heavy lifting as far as counteracting the negative sentiment brought on by Tuesday's 3yr auction...the 10yr took care of that yesterday. All we needed was something in between the two (average) in order to continue seeing a 10yr yield UNDER yesterday's pre-auction levels.  Interestingly enough that's not only exactly what is happening, but it's happening in such a way as to give us a nice picture of a technical pivot point just under 3.70% (our sell off inflection point/target)

Whoah, that's some nice intraday resistance!  Stay classy 10yr technicals!

In the world of MBS, FNCL 4.5's are up enough that we've seen a few reprices for the better since the auction. Nothing widespread though.   What is even more striking about the day is a LACK OF VOLATILITY in the bond market.  It's hard to even detect the market-based reaction in the charts.  This is also a good thing for MBS, as high volatility can have desultory effects on spread products.   Also note how close almost all of the securities in the screenshot below are to unchanged on the day.  (like the screenshot?  Want it to update in real time with nifty flashing lights and perhaps a bell or whistle or two?  Learn More Here...)