Tailing, Lacklustre 30 Year Auction A Big Letdown From Yetserday Blockbuster 10-Year
After yesterday’s blockbuster, record-setting 10Y auction which saw many buyside metrics print at the strongest levels on record (nearly 4bps stop through, record high indirects), traders expected today’s last refunding auction – when the Treasury sells $27BN in 30Y paper – to be a more muted affair. According to Bloomberg, investors should go for the $27 billion bonds auction with yields above the round threshold of 2% and there is likely to be a smattering of short covering at the 1 p.m. NYT deadline with 30Y paper trading special in repo.
“The 30-year auction will not have a bid from central banks, in our view,” wrote Padhraic Garvey, head of global debt and rates strategy at ING Groep NV, noting that yields on the long bond are about 2% and broadly in the same area as last month’s sale. “It’s in a similar boat this time around.”
According to Bloomberg’s Alyce Anders, Asian-based accounts may come for the long-bond in the post auction redistribution especially if yields hold above that 2% threshold. She notes that “it is somewhat normal to see a 30-year rally in the 24 hours after the bond auction. That is especially true when the bond is sold on a Thursday. Tails are also common on 30-year bond auctions and last month’s tail did not seem to dent demand in the days after the auction.”
Finally, in light of today’s selloff across the curve, few were expecting a repeat of yesterday’s record-setting auction, and that’s just what they got.
At exactly 1:01pm ET, the Treasury announced that the final refunding auction of the week, it sold $27BN of 30Y paper with a high yield of 2.040%, tailing the When Issued 2.030% by 1 basis point, and the fourth tailing 30Y auction in a row. The yield came in 4bps above the July auction which priced at exactly 2.000%, ending the string of consecutive auctions that saw yields dip from a 2021 high of 2.395% in May.
The bid to cover of 2.2084 was similarly lackluster, rising from last month’s 2.193 but the second lowest since February and well below the six-auction average of 2.271.
The internals were muted at best with Indirects dipping from 61.1% in July to 60.7%; this was also below the recent auction average of 61.2%, with Directs taking down 21.0%, the highest since April and leaving Dealers holding 18.35%, modestly below the 19.8% recent average.
Overall, a lackluster, forgettable auction especially when compared to yesterday’s blowout 10Y sale but good enough to avoid a broader market selloff, and sure enough after a brief spike to session highs, the 10Y has since recovered the move and was trading back where it was just ahead of the auction.
Thu, 08/12/2021 – 13:12