Tuesday’s 2-year auction was less than stellar, but the general market attitude remained optimistic going into the second half of this week’s supply. Bonds opened strong on Wednesday, catching a bid on weakness in stocks overseas and it seemed as if supply concerns were fading by midmorning. In the hour or so before the auction yields started to creep up and were blown wide open when the results of this year’s worst Treasury auction were released.
I didn’t see it coming, and neither did the majority of the market as the weakly bid auction priced at 2.689%, 5 basis points higher than the market at 1 pm, with a 1.92 bids for every dollar of bonds sold, a weak number compared to the recent average of 2.26 for 5-year auctions.
Indirect bidders took 36.7% of the auction, a lower percentage than expected. The Wall Street Journal has an article sighting some interviews with major traders who are speculating that foreign buyers of Treasuries, who are historically large buyers of short-term US debt, are becoming increasingly concerned with higher rates and as a result have moved even further down the curve. In addition to the $115 billion in coupon Treasuries, over $100 billion in bills are being auctioned this week. Foreign central banks concentrating more on bill auctions instead of the 2- and 5-year auctions could explain some of what’s going on.
Cliff J. Reynolds Jr., Investment Analyst
I didn’t see it coming, and neither did the majority of the market as the weakly bid auction priced at 2.689%, 5 basis points higher than the market at 1 pm, with a 1.92 bids for every dollar of bonds sold, a weak number compared to the recent average of 2.26 for 5-year auctions.
Indirect bidders took 36.7% of the auction, a lower percentage than expected. The Wall Street Journal has an article sighting some interviews with major traders who are speculating that foreign buyers of Treasuries, who are historically large buyers of short-term US debt, are becoming increasingly concerned with higher rates and as a result have moved even further down the curve. In addition to the $115 billion in coupon Treasuries, over $100 billion in bills are being auctioned this week. Foreign central banks concentrating more on bill auctions instead of the 2- and 5-year auctions could explain some of what’s going on.
Cliff J. Reynolds Jr., Investment Analyst
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