A strong 3-year auction was outweighed by the rally in stocks yesterday as yields rose across the curve. The curve steepened for the fourth session in a row to 254 basis points, its steepest point since it finished at 256 bps on August 12.
The market was really focused on the rally in risky assets, so the auction wasn’t able to bring Treasury yields lower yesterday. I mentioned last week that Tuesday’s auction could have some difficulties given it’s very short “when issued” period – the auction was just announced Thursday afternoon – but that was no problem at all. Bid/cover was over 3 for the first time since November 2008 – yesterday was 3.02 – and 54.2% of the notes were taken down by indirect bidders, in line with the average.
The Fed took down $4.95 billion in the 7-10 year sector, leaving less than $20 billion to be purchased. The Fed will purchase Treasuries again on Tuesday and Wednesday of next week.
The Treasury will bring $20 billion of the existing 10-year note to market today. Bank demand, both domestic and foreign, has really made for breezy short-duration auctions as of late but longer-duration auctions have had more difficulty establishing a clearing price so yesterday’s success is not guaranteed to carry through to today.
Cliff J. Reynolds Jr., Investment Analyst
Wednesday, September 9, 2009
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