Strong 10Y Auction After Sharp Rebound In Foreign Demand

Following yesterday's unexpectedly ugly 3Y auction, bond traders were closely looking at today's 10Y reopening of CUSIP 4n7 to see if the weakness would persist. And, in what may come as further bad new for the bond bears of which the latest CFTC commitment of traders report showed there is now a record amount, moments ago the Treasury sold $22BN in 10Y paper in what was a very strong auction, pricing at a yield of 2.859%, stopping through the When Issued 2.862% by 0.3bps and the lowest stop on a 10Y auction since April, well below last month's 2.965%.

The internals were also solid: the bid to cover of 2.57 was below last auction but above the 6 month average of 2.52, while the take down showed that Indirect bidders jumped from last month's modest 56.0% to 65.0% in July, the highest since March, and with Directs taking down 10.5%, Dealers were left with 24.5% of the auction, the lowest since January 2018 as customer demand rebounded.

Overall, this was a very strong auction, perhaps the result of an earlier concession as a result of the modest selloff in the benchmark security, which pushed the yield from 2.83% to 2.86% at the highs.

But the take home is that for all the concerns about the Fed's balance sheet rolloff, primary market demand for 10Y paper still remains as solid is ever.


Countrybunkererd Wed, 07/11/2018 - 13:17 Permalink

That just makes me so warm and fuzzy inside.  Like a big shot of vodka...but mixed with arsenic and adrenaline.  The Fed's bar serves a new drink called the C&C.  Three shots of vodka with lots of castor oil and cocaine and the all American classic strawberry on top, no wait that is the Kudlowen.

el buitre Countrybunkererd Wed, 07/11/2018 - 14:12 Permalink

The Chinese will suck up gold like a giant vacuum until the BIS and the Vatican shut their gold windows a la Nixon and Kissinger in 1971.  Then it will be a moon shot.  When?  Quién sabe?

As to the ESF not having unlimited funds.  Fifty trillion dollars is a pretty good estimate of  unlimited.  That is how much CA Fitts and Prof. Mark Skidmore have traced to government unaccounted funds.  Admittedly, a lot went into the SSP and the DUMBs, but I bet there's enough left to buy a goodly number of Treasuries through off shore proxies.  Did Belgium buy a couple of trillion yesterday by any chance?

In reply to by Countrybunkererd

Consuelo el buitre Wed, 07/11/2018 - 14:55 Permalink

The Pharisees have wondrous ways & means of monetary chicanery without end.   It's sort of a family thing...

As for their 5000 year-old counterparts in the Middle Kingdom - they're quite clever in their own right.   My fresh chicken entrails say they'll feign economic weakness until a global crisis-in-confidence rises out of the ocean like the Kraken, and then unveil the truth regarding their gold hoard to calm (and attract) foreign 'ships' looking for a safe harbor in the storm.



In reply to by el buitre