What Does The Ever Increasing Tendered-To-Accepted Treasury Ratio Portend?
While the recent debate over just who is actually buying US Treasuries rages on, with all the attention focusing on QE and China, we decided to analyze the actual ratio of Tendered-to-Accepted for all Treasury Bonds issued in 2009 by tenor. A preliminary observation is that across virtually all classes, the linear trendline indicates a rather consistent expansion of the T/A ratio. In other words as the number of bonds Accepted remains relatively flat per any one given issue, even if they are spaced closer together courtesy of our brand spanking new multi-trillion deficit, the amount of bids "Tendered for" has actually been progressively increasing! Additionally, there seems to be a peculiar inflection point in the 2-3 Year maturities: while T/A for 2 Years has been relatively flat, the comparable R^2 for the 3 Years is 4 times as high, indicating a materially larger Tender interest at the 3 Year point of the curve, at the expense of the 2 Year.
We present the data below.
2 Year Treasuries:
3 Year Treasuries:
5 Year Treasuries:
7 Year Treasuries:
10 Year Treasuries:
30 Year Treasuries:
And here is a comparison of the various R2 by tenor for all 2009 issues.
The main question here is whether the relative Tender points of focus are indicative of where treasury market participants expect key inflation inflection points. And, furthermore, the record Tender amounts in the 3, 5 and 7 more recent auctions, could also be explained as a wholesale fleeing from the tender loving care (no pun intended) of the equity market. Cumulatively, between all tenors, as of their last respective auctions, practically half a trillion ($496 billion) was tendered, of which just $185 billion was accepted. There is thus another $310 billion that will likely continue getting tendered in future Treasury auctions (absent a dramatic change in economic climate), and probably flee equities, at least in a non-bizarro world.