20-Year Auction Tails Despite Strong Internals
Despite a stock market downturn and a surge in yields, the 20-year reopening auction (19Y, 10M Cusip UD8) did not perform as expected.
High Yield and Consecutive Tails
The auction stopped at a high yield of 4.590%, a significant increase from the previous month's 4.039%. This is the highest yield since May and is 1.6bps higher than the When Issued 4.574%, marking the second consecutive tail. However, this tail was not as severe as the previous month's 2.0bps tail.
Solid Bid to Cover
The bid to cover ratio was a strong 2.59, an improvement from the previous month's 2.51 and the highest since July's 2.78. However, it was still below the average of 2.64 from the last six auctions.
Decent Internals
Internals were also decent, with Indirects accounting for 67.9%, up from 65.1% but below the recent average of 72.8%. Directs were awarded 17.6%, leaving Dealers with 14.5% of the final allotment.
Mediocre Auction Performance
Overall, the auction performance was mediocre, with decent internals but nothing exceptional. The auction did little to curb the ongoing selling observed in recent days across the curve. The market is starting to retrade "Trumpflation" as not just a Trump administration, but a Red sweep, appears increasingly likely.
Bottom Line
The auction's performance was less than stellar, despite the stock market's downturn and the surge in yields. The high yield and consecutive tails, along with the decent internals, indicate a mediocre performance. The market is also beginning to retrade "Trumpflation" as the likelihood of a Red sweep becomes more apparent. What are your thoughts on this? Share this article with your friends and spark a conversation. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6 pm.
