One month after one of the strongest 10Y auctions in history (which followed two months after one of the ugliest ones), today’s 9-year 11-month reopening was another ugly affair as markets and traders rush from one sentiment extreme to the other.
According to the Treasury, today’s sale of $32BN in 10Y notes (technically 9Y-11M reopening), priced at a high yield of 3.985%, which was 30bps higher than February’s 3.643% and also tailed the When Issued 3.958% by 2.7bps. As shown below, the 10Y has seen some dramatic tails and stop throughs, and in the past 5 auctions, 4 have seen a tail or stop through of more than 2bps, a degree of volatility that had never been seen before.
The bid to cover slumped to 2.35, down from 2.66 in February, and below the six-auction average of 2.41.
The internals were also ugly, with Indirects tumbling from last month’s record high 79.5%, to just 62.3%, which was the lowest since December and below the recent average of 63.8%. And with Directs awarded 20%, Dealers were left holding 17.7%, the most since December.
In kneejerk response, 10Y yields in the secondary market – which had traded slightly lower for much of the US session – spiked and rose above 3.98% approaching the high yield on the auction, and also nearing the highs of the session which are just north of 4.00%, with the move hurting risk assets and spoos drifting lower and also approaching session lows.