A strong Treasury auction helped bonds have a good day for a change. The two-year finished up 2/32, and the ten-year was higher by 23/32. The curve flattened 6 basis points on the day, and currently sits at +253 bps. After a string of questionable auctions Treasurys rallied today after the market was surprised to see strong demand for long term government debt in today’s 30-year auction. The $11 billion auction came in at a high yield of 4.72% with a bid/cover ratio of 2.68, higher than the 2.31 average from the previous four 30-year auctions.
Although we have seen very strong demand as of late, it is only coming at a higher cost for the Treasury in the form of higher interest rates. Today was the exception after two consecutive auctions that pushed yields higher, and the market saw today’s result as a sign of strength. But today should definitely be taken with a grain of salt. The yield on the ten-year has risen 115 basis points since the failed UK Treasury auction on March 25 that began the latest batch of fears that soon there will be no one willing to lend to the Treasury. Even if there are plenty of worries about the soundness of the dollar going forward, investors are naturally going to like 3.85% better than 2.7%. The example is overly simplified but you get my point.
Have a great evening.
Cliff J. Reynolds Jr., Junior Analyst
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