Sweeping Volatility Has Low Impact on Treasury Auctions
"Taper talk" has injected volatility into financial markets, but it's had just a marginal impact on the Treasury's auctions this week, as traders now await the auction of $13 billion in reopened 30-year bonds Thursday.
Wednesday's 10-year auction was the second of the week, following a weak three-year note auction Tuesday. But traders say it was better than they expected.
The yield was 2.21 percent, just about at market and above its Tuesday close of 2.18 percent. Demand for the $21 billion in reopened 10-year notes saw the ratio of bids offered over those accepted at 2.53, below the 2.83 10-auction average.
Yields have been rising since the market started to price in a Federal Reserve slowdown in bond purchases, and this week's auctions were of special interest because of it. The views of when the Fed starts to taper its $85 billion in bond purchases range from September to well into next year.
Indirect participation was at a two-year high of 51.67 percent, way above the 10-auction average of 36 percent. Those are institutions that go to dealers to purchase Treasurys. Direct participants, who go straight to the Treasury themselves, were 11.75 percent. That group includes financial institutions and possibly foreign central banks.
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"There was no tail. It was bid right on the market. It was a very normal auction. Tomorrow's a 30-year and we'll go through the same," said one strategist. Bonds continued to sell off after the auction.
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"It was a relatively high yield for a 10-year auction. The last time the 10-year auction was as high as this was October, 2011, and that tailed 3 bps," said Ian Lyngen, senior Treasury strategist at CRT Capital.
"I think the interesting part was the indirect bid was the largest indirect award we've seen since December, 2011," he said, adding that that particular auction had a high level of foreign bidders—28 percent. This auction may also have drawn in more foreign investors, interested in higher yields, he said.
RBS Treasury strategist John Briggs said the auction was actually better than he thought it would be.
"I say this because we are in the midst of a global position unwind, and with that in the background of today's auction had a high hurdle—but one we were able to clear as investors voted with their wallets that 10-year notes at these yields, at auction, were worth owning," he wrote in a note.
"I think this is a vote of confidence for the market (if only a minor one), helps set up tomorrow's 30-year auction a bit better and should help stabilize the market to some degree."
—By CNBC's Patti Domm. Follow her on Twitter @pattidomm.