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Robust Treasury Auction Yield, But Still a B-

Uncertainty in Europehas been the dominant feature in the credit markets, but it didn’t seem to have a dramatic effect on the results of Tuesday's treasury auction of $42 billion 2-year notes.

I gave Tuesday’s auction a B-, which is more than respectable, but short of stellar.

Once the bidding was over, the auction came in with a high yield of 7.69 percent and a light bid-to-cover ratio of 2.93, compared with the 10-auction average of about 3.08.

About 36 percent of the bidders were indirect, versus 41 percent, which is the average for the last 10 auctions.

Even though I don’t factor in the number of direct bids to determine my grade, Tuesday’s came in at 15.2 percent, compared with the 10-auction average of 10 percent.

Of late, anywhere from 15 percent to upward of 20 percent on most of these auctions has been in the direct-bid category.

As I’ve said earlier, it’s important to know if these direct bidders will continue to show up, because they represent a sizable chunk of the bidding process.

I’m a tough grader. And the way I look at these Treasury auctions is this: The fact that we can move these auctions at all, at a much higher bid-to-cover ratio than they are getting in Europe, is a good thing.

In fact, I think talking about the Treasury market is a very important topic. It’s not by choice that global investors seem to lend to our government at these very low rates.

It seems more like the last bus stop of investor preferences, other than the mattress, which means the Treasury should not assume such demand will continue unabated when the financial world becomes a “safer” place.

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