Auction Alert: Reprices for Worse Possible

Treasury just auctioned $16bn 30 year bonds. Things didn't go well. Rates are on the rise. Quickly...

Benchmark just broke overhead support and FNCL 4.5's are 6 ticks lower on the day at 103-01, which is 8/32 off intraday highs. Reprices for the worse are possible and increasingly so if prices break into the 102 handle or remain close to it for an extended period of time.

Here are the results of the 30yr Auction, published earlier on the MBSonMND Dashboard:

30yr Treasury Bond Auction Results:  The 30yr bond auction was met with much weaker demand than previous bond auctions, garnering only 2.43 bids for every one accepted by Treasury. At 1pm the when-issued yield stood at 4.355 so the 4.380 High Yield awarded at the auction constituted a "tail" of 2.5 bps. Taking a mere 33% of the auction, Indirect Bidders were a light sponsor whereas dealers were forced to shoulder more of the borrowing burden than normal, 58% vs the 48% average seen in the last 5 auctions. Overall, it's a weak auction which we may well have expected given yesterday's rally, but the hope was that this morning's weakness would have baked-in a sufficient concession so as to minimize post-auction selling. The initial movements in TSYs have naturally been weaker, but 10yr yields are holding on to their 3.24 support level so far. MBS are much better by comparison although at their lows of the day.