Rub-a-dub-dub in a $21bn Treasuries tub | FT Alphaville

Rub-a-dub-dub in a $21bn Treasuries tub

Investors sloshed and splashed in a $21bn bloodbath on Wednesday.

An auction of $21bn worth of US Treasuries at 3.34 per cent was the highest bid since May, and well past the 2.64 per cent yield at last month’s auction.

Chart courtesy of Zero Hedge:

And here are the key numbers, from RBS:

Treasury auctioned $21B reopened 10-Yr notes at 3.34% versus a 1pm level of 3.335% so the auction tailed 0.5bps.

Bid/Cover 2.92X (6-month auction average 3.06X)

Indirects 44.4% (6-month auction average 46.8%)

Directs 11.4% (6-month auction average 10.2%)

Dealers 44.2% (6-month auction average 43.1%)

So, a big, relative yield rise following President Obama’s stimulus 3.0 tax cuts announcement with no obvious surface damage to demand (bid/cover was in fact up on November).

RBS is a wee bit worried:

While flows into the auction today were slightly more supportive for Treasuries than they have been the previous few days, the price action was certainly not as 10yr yields have sold off 35bps+ over the past few sessions and more than 15bps today.

Similar to the 3yr auction yesterday (with average metrics), I find the results mildly disappointing considering the backup in rates to this point. Whether the auction results will be enough to provide a floor to the market remains to be seen, especially with liquidity and risk appetites at levels not seen since 2008, according to our traders. In addition, the last few days have shown bounces off support to be short-lived and small – so I would expect to see further set-up and liquidation on any rallies into tomorrow’s 30yr bond auction.

Given the faint whispers of would-be bond vigilantes, this might turn out to be well placed scepticism.

Related link:
Bloodbath of the bonds – FT Alphaville
Treasuries ditched – FT Alphaville
Soaring US bond yields spook investors – FT