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Treasuries Extend Gains After 30 Year Auction Sees Solid Demand, Stops Through

Thursday, October 13, 2016 12:23
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With the long-end of not only the US Treasury Curve but across the globe, the key topic for discussion among rates strategists at a time when we have seen some brisk curve steepening on expectations that central banks around the globe have decided to tighten modestly at the longer maturity bucket, attention was glued to today’s sale, and this week’s final auction, a reopening of $12 billion in 29-year 10-month paper (Cusip RT7), and contrary to whisper expectations that the auction would disappoint, there was virtually no problem in placing the ultra long dated paper amid willing buyers.

The high yield printed at 2.470%, 0.6bps through the When Issued at 1pm, while the Bid to Cover rebounded from last month’s deplorable 2.129, which was the lowest since February, rising to a far more respectable 2.439, the highest since July.

The internals also were a solid improvement with Indirects jumping from September’s 57.9% to 65.4%, above the 61.5% 12MMA, as Directs showed some more appetite for the long end, taking down 6.1%, vs last month’s 4.6%, if still well below the 9.9% 12 month average, leaving Dealers holding 28.5% of the auction, suggesting foreign central banker appetite for US paper has returned even with concerns that the Fed may hike as soon as next month, or perhaps due to such concerns, because the thinking among the rate community is that the one thing that would guarantee a far flatter yield curve is for the Fed to hike and unleash even more flows into the long end, where the market refuses to five Yellen any credibility that she can boost inflation expectations materially higher.


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