One of the worst 10-year Treasury note auctions in years made only a relatively minor ripple in a market that’s grown accustomed to absorbing punishing blows.
(Bloomberg) — One of the worst 10-year Treasury note auctions in years made only a relatively minor ripple in a market that’s grown accustomed to absorbing punishing blows.
Wednesday’s $35 billion auction of new 10-year notes drew a yield of 4.140%, more than three basis points above the level in pre-auction trading just before the bidding deadline. That’s a sign that dealers overestimated demand for the highest-yielding 10-year note since 2008.
While the size of the miss — 3.4 basis points — is an approximation by dealers, not an official statistic, it was the biggest since December 2009. Nonetheless, market reaction was limited. The auction sector cheapened by about five basis points, from about 4.11% just before the auction to about 4.16% shortly afterward, before stabilizing around 4.15%.
“Dealers that bought them did not panic,” said Tony Farren, managing director in rates sales at Mischler Financial Group Inc.
There were a few possible reasons for the weak result. For one thing, dealers may have been reluctant to take risk before Thursday’s release of the October Consumer Price Index, as the last two reports sparked selloffs. Also, steep losses in stocks and cryptocurrencies on Wednesday may have discouraged traders from setting short positions, as they’d normally do ahead of an auction.
What’s more, while the magnitude of Wednesday’s miss may have been unusual, it fits the trend of recent months: Seven of the previous eight monthly 10-year auctions also drew higher-than-expected yields.
–With assistance from Edward Bolingbroke.
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