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Inquiring
minds are reading Treasury Yield
Curve Near Record Adds to Demand at Bond Auction.
Treasury
30-year bonds gained as one of the biggest yield premiums over 2-year
government securities on record bolstered demand at today’s U.S.
auction of $13 billion in bonds.
“Insurers, pension funds and other investors continue to buy the
30-year because of its outright yield and it relative value attractive
against the short-end given the inflation and economic pictures,” said
Thomas Tucci, head of U.S. government bond trading in New York at the Royal
Bank of Canada, one of the 18 primary dealers required to bid at Treasury
auctions. “There is just little value in the front end versus the long
bond.”
“If you look behind the trade numbers, exports and imports both
fell,” said Kathy Lien, director of currency research, with online
currency trader GFT Forex, in New York. “The contraction in imports and
exports does not play into the growth story. That’s why risk currencies
are selling off and the dollar is rising.”
Today’s auction of 30-year debt followed a sale of $21 billion of
10-year debt yesterday. The Treasury auctioned a record-tying $40 billion of
three-year notes on March 9.
The 30-year securities drew a yield of 4.679 percent, compared with an
average forecast of 4.702 percent in a Bloomberg News survey of 9 of the
Federal Reserve’s 18 primary dealers. Direct bidders, non-primary
dealers that place their bids directly with the Treasury, bought 29.6
percent, the highest since at least February 2006.
“The yield pick-up extending out the curve is attractive at these
levels,” said Richard Bryant, senior vice president in fixed income at
MF Global Inc. in New York, a broker of exchange-traded futures. “Real
money will go to work on the long end of the Treasury market. The range that
has held on the long end is reflective of the benign inflation environment at
the moment.”
Charts
of the Day
Tyler Durden writing on Zero Hedge has a pair of interesting charts in $13 Billion 30 Year
Reopening Closes At 4.679%, Directs Take Down Whopping 29.7%: A New Record,
Indirects Settle For Mere 23.9%
Direct
Bidders
click on chart for sharper image
Indirect Bidders
click on chart for sharper image
A Very Good
Auction
In contrast to what many think about treasuries ready to blow up because of
falling foreign demand, I repeat what I have been saying all along: US demand
will pick up.
That aside, it is also important to point out that indirect bidding is
related to trade deficits. When the trade deficit is high and rising, foreign
buyers step up treasury buying as a purely mathematical function of parking
inflows, although there is nothing that forces the buyers to go that far out
on the yield curve.
Since the trade deficit is not what it once was, one should expect foreign
buying to slow. Thus I do not know what Tyler Durden means when he says
"Indirects at miserable 23.9% vs. Avg. 42.32%".
Here is my intrepretation of the auction: I would suggest this auction went
very well as demand is picking up from US buyers, without yields going to the
moon.
Mish
GlobalEconomicAnalysis.blogspot.com
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