7Y Auction Ends with Impressive Results, Yields Drop

A Stellar Auction Amidst a Challenging Week

The week started off with two disappointing auctions, but the Treasury managed to turn things around with a successful sale of $44 billion in 7-year paper. This auction was a significant improvement and was a welcome change in a week that had so far been marked by less than stellar auction results.

High Yield and Stop Through

The auction concluded with a high yield of 4.215%, which is 54bps higher than the 3.668% seen last month and the highest since June. However, what stands out is that it was below the When Issued, which traded at 4.235% at 1PM. This resulted in a stop through of 2bps, the biggest stop through since January 2023, and tied with the stop in August 2023.

Bid to Cover Surges

The bid to cover ratio saw an increase from 2.628 to 2.737, the highest since the height of the covid crisis in March 2020, when there was a scramble to acquire Treasury paper.

Impressive Internals

The auction's internals were also impressive. Indirects were awarded 72.0, up from 70.8, and above the average of the past six auctions, which was 70.3. Directs were awarded 20.6%, up from 20.3% in September, and the highest since April. As a result, Dealers were left with just 7.5% of the allotment, the lowest since January 2023.

Market Impact

This successful 7-year auction came at a crucial time, helping to calm market nerves. Prior to the auction, the 10-year was trading at 4.34% - the highest since July - and was poised to spike on any hint of a disappointing auction. However, the yield fell by about 4 bps following the announcement of the auction results, sparking a new wave of stock buying.

Bottom Line

This auction demonstrates the resilience and adaptability of the Treasury amidst market fluctuations. The impressive results have not only calmed market nerves but also sparked a new wave of stock buying. What are your thoughts on this turn of events? Do you think this successful auction will have a long-term positive impact on the market? Share your thoughts and this article with your friends. Also, don't forget to sign up for the Daily Briefing, available every day at 6pm.