Weak Auction Pushes Rates Higher

by Adam Quinones

The Treasury has sold  $21 billion 9 year-11 month notes.

Today’s auction was a reopening.  “Reopening” means the Treasury is simply adding securities to an already outstanding issuance. Today’s auction adds to the November 10 issuance, which matures in November 2019.

When the Treasury auctions a new note,  the coupon rate is not known ahead of the auction process, instead it is determined during the auction. In a  “reopening”, the coupon rate is already known because it was determined at the time of original auction. Today’s reopening of $21 billion, a record size for a 10yr reopening, has a 3.375% coupon rate.

This also explains why the maturity is only  9 years and 11 months.

Here are the results:

YIELDS
High           3.448 pct
Median       3.360 pct
Low           3.300 pct

PRICE/ACCEPTANCES
Price                        99.387238
Accepted at high   67.28 pct
Bid-to-cover ratio   2.62

AMOUNTS TENDERED AND ACCEPTED (dollars)
Total accepted                             21,000,021,400
Total public bids tendered             55,062,801,400

Competitive bids accepted            20,954,820,000
Noncompetitive bids accepted       45,201,400

Fed add-ons                                112,945,900

Primary Dealer Tendered              39,146,000,000
Primary Dealer Accepted              11,766,020,000
Primary Dealer Hit Rate                30.1% of what they bid on
Primary Dealer Overall Award       56% of auction

Direct Bidder Tendered                 2,755,000,000
Direct Bidder Accepted                 1,875,000,000
Direct Bidder Hit Rate                   68% of what they bid on
Direct Bidder Overall Award          8.9% of auction

Indirect Bidder Tendered             13,116,600,000
Indirect Bidder Accepted              7,313,800,000
Indirect Bidder Hit Rate               55.8% of what they bid on
Indirect Bidder Overall Award      34.8% of auction

This one isn’t tough to explain…indirect bidders didnt show up. Rates are now higher and the yield curve is steeper….

Consequently, “rate sheet influential” MBS prices plummeted after the auction results.

Lenders may reprice for the worse as a result of the weak auction…