Yesterday’s strong 3Y auction was a harbinger. Despite the relentless risk on rally, moments ago the US Treasury had no problems to sell $20 billion in 10 Year paper which priced at a high yield of 1.765% (98.5% allotted), stopping through 1.6 bps through the 1.781% When Issued, the biggest gap since last spring, and well below March’s 1.895%.
The bid to cover jumped from last month’s 2.49, rising to 2.75, well above the 6 month average, and the highest since January.
Indirect demand also rose, with foreign central banks taking down 60% of the auction, the highest since February, and just below the 6 month average of 62.42%. Directs took down 15.3%, matching the February print, and the highest since May of 2015. This left Dealers with 24.8% of the auction.
The immediate result: a bid for long paper with 10Y and 30Y bonds extending gains in the immediate aftermath of the issuance.
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