Heading into today's 10Y auction, one day after yesterday's mediocre, tailing 3Y and with yields moving back higher after yesterday's slump, JPMorgan's rates strategists said that they expected the $33bn auction to be digest smoothly, "given the sector looks rich, has seen a strong move higher in yield, and that the auction size is smaller in size." They were right, more or less.
Pricing at a high yield of 3.03%, today's 9-Year, 11-Month repoening of CUSIP EP2 priced at a high yield of 3.030%, rising by 9bps from last month's 2.943%, the highest since Nov 2018, and tailing the When Issued 3.018 by 1.2bps. The tail, which was somewhat unexpected since there was a generous concession into today's auction, was the 4th consecutive tail for the 10Y which has seen just one stop through in the past 8 auctions (in Feb 2022).
The Bid to Cover of 2.41 was below last month's 2.49, and below the six-auction average of 2.50.
The internals were also lousy with Indirects taking down just 63.6%, down sharply from 70.3% last month and below the recent average of 69.1%. And with Directs taking down 19.4%, or the highest since Dec 2019, meant Dealers were left holding 17.0% of the auction, above both last month's 11.5% and the recent average of 13.6%.
Overall, another quite mediocre auction if nothing catastrophic ahead of Friday's CPI, and certainly nothing that suggests the bond market is starting to shut down ahead of the first official Fed balance sheet QTightening one week from today when a $15Bn maturity will be the first balance sheet shrinkage in years.