- FN 4.5's still positive on the day, 1 tick up at 99-10
- 10yr Treasury at 3.964
- Auction demand for 3yr notes was strong
The Treasury has successfully auctioned $40 billion 3 year notes. This is the sixth consecutive offering at this size.
The bid to cover ratio, a measure of auction demand, was 3.10 bids submitted for every one accepted by the Treasury. This is above both the ten auction average of 2.67 and the five auction average of 3.05 and the third highest 3yr note turnout in the last sixteen auctions--- only the November 9, 2009 refunding and last month's issue saw greater demand. (3.33 and 3.13 btc's respectively)
Bidding stopped out at a high yield of 1.776%...which was basically "on the screws" with the 1pm "when issued" bid. Note: the high yield at last month's 3 year note auction was 1.437%. That is a 34 basis point increase in one month! This issue was cheap...demand should have been as strong!
Primary Dealers, aka the street, took 37.0% of the issue. This is above the five auction average of 35.8% and the ten auction average of 35.0%. While dealer participation was higher relative to recent auctions, newly issued 3 year notes continue to see a steady decline in the need for Dealer $$$ support. This is a positive...we do not want the street taking down higher percentages of the auction because they will need to get rid of unexpected supply...and they will not do it at cost.
Direct bidders, aka domestic fund managers like Vanguard and PIMCO, were awarded 10.8% of the issue. This is above the ten auction average of 8.52% but exactly the same as the five auction average. Direct bidders continue to show up to 3 year note auctions.
Indirect bidders were awarded 52.3% of the auction. This is above the ten auction average of 48.5% of the issue but below the five auction average of 54.0%. iIndirect bidder demand continues to hold steady for the 3 year note.
This was a good auction...all around. Below is a recap of auction statistics.
$40 BILLION 3-YEAR NOTES
YIELDS
High 1.776 pct
Median 1.720 pct
Low 1.670 pct
PRICE/ACCEPTANCES
Price 99.924368
Accepted at high 44.71
Bid-to-cover ratio 3.10
AMOUNTS TENDERED AND ACCEPTED (dollars)
Total accepted 42,928,161,200
Total public bids tendered 126,943,973,300
Competitive bids accepted 39,941,588,000
Noncompetitive bids accepted 58,414,700
Fed add-ons 2,928,158,500
Primary Dealer Tendered 80,000,000,100
Primary Dealer Accepted 14,780,000,000
Primary Dealer Hit Rate 18.5% of what they bid on
Primary Dealer Total Award 37.0% of total auction
Direct Bidder Tendered 13,848,000,000
Direct Bidder Accepted 4,293,188,000
Direct Bidder Hit Rate 31.0% of what they bid on
Direct Bidder Total Award 10.8% of total auction
Indirect Bidder Tendered 30,109,400,000
Indirect Bidder Accepted 20,868,400,000
Indirect Bidder Hit Rate 69.3% of what they bid on
Indirect Bidder Total Award 52.3% of total auction
There is a nice little technical trip wire in 10yr yields at 3.97 that lines up with yesterday AM's high yields. That's really the first indication for sensitive locks in my view. Even then, I'd probably pay an eighth or two in order to see the cards on the table at tomorrow's auction.
It's going to FEEL uncomfortable to float "on the edge" deals that you would prefer to float until tomorrow but IF we see any reprices, they won't be big. We shouldn't see any according to how things have traded so far. If that changes, we'll let you know then.
UPDATED AT 1:45PM
Check out the FOUR retests of 3.974 in the 10yr.
(bottom part of the chart is the yield curve for anyone who's interested)
I'm still humming "hold on for one more day..." and wishing I had a more masculine iteration of that concept than that afforded by wilson phillips..but reprices for the worse are possible!
NEXT EVENT: FOMC Minutes from the March meeting at 2pm. Hoping the Fed's meeting discussion had a fair amount of "nervousness" embedded.
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