* SUPPLY: The US Treasury will auction USD 83bln in 3-year (USD 37bln, Monday), 10-year (USD 27bln, Tuesday), and 30-year (USD 19bln, Wednesday). With USD 54.3bln maturing at the mid-month settlement, the auctions are set to raise USD 28.7bln of new supply. TD Securities also notes that there will be USD 34.3bln of SOMA holdings maturing at the mid-month, and the Fed set to add-on USD 7.6bln to 3s, USD 5.5bln to 10s, and USD 3.9bln to the 30s; TD also notes that the Fed balance sheet run-off hit full pace last month, with the central bank now allowing USD 30bln to roll-off per month. Looking at this week’s auctions as a whole, TD Securities says “higher yields and equity market volatility present an interesting opportunity for investors to dip their toes in long end rates,” and “the steepening of the curve also represents an opportunity for investors to re-engage in flatteners, particularly as growth momentum remains strong (as evidenced by Friday’s payroll data).” But TD does note that the previous cycle of auctions a fortnight ago suggested some softness in direct bidder participation, and as of late, dealer inventories have also risen in recent weeks, and the bank believes that could suggest the potential for upward pressure on rates.
Recent history depicts strong results for the 30yr which “was the only tenor that saw a pickup in demand”, Barclays says. On top of this, recent steepening and recent rates uphold are expected to provide even further support to the bid-to-cover which posted at 2.4x in October, the highest so far since the start of the year, TD Securities notes. In terms of participation, foreign and domestic investors continue to show strong interest, taking on around 60% of supply. Similarly, foreign investors’ slice of the cake has risen significantly after securing 13% of total supply in October, rising from 8% in July.
Recent Auction History:
Tail size: (Prev. on the screws, six-auction average: stops-through by 0.2bps) Bid-to-Cover: (Prev. 2.42x, six-auction average 2.36x) High-yield (Prev. 3.344%, six-auction average: 3.118%) Dealers (Prev. 22.8%, six-auction average: 27.3%) Directs % (Prev. 12.8%, six-auction average: 10.2%) Indirects (Prev. 64.4%, six-auction average: 62.5%) (Newswires)