Strong Buyside Demand For 10Y Auction Despite Big Tail

In today’s second Treasury auction (as a reminder, thanks to the FOMC we are on a very truncated issuance schedule this week), and just 90 minutes after an ugly 3Y sale, moments ago the Treasury sold $37BN in 10Y paper in the form of  a 9 Year 11-Month reopening of Cusip CJJ1, which was almost as ugly as the day’s earlier auction.

The last 10Y auction of the year priced at a high yield of 4.296%, which while a notable drop from last month’s 4.519% and the highest since September’s 4.289%, also tailed the When issued 4.282% by 1.4bps, which as shown below, was the 3rd consecutive tailing 10Y auction, and the 9th tail in the past 10 auctions. An even more remarkable statistics, is that since the end of 2021, there have been 24 10-Year auctions, of which only 4 have not tailed, suggesting that demand for benchmark US paper is in a slow-motion collapse.

The bid to cover was not terrible (unlike the 3Y earlier) and at 2.53 actually rose from November’s 2.45, and was actually higher than the recent auction average of 2.49.

That said, the internals were less than average, with Indirects sliding to 63.8%, from 69.7%, and below the six-auction average of 66.4%. And with Directs awarded 18.9%, or just below the recent average of 19.0%, Dealers were left with 17.3%, also in line with recent results.

Overall, this was a distinctly mediocre auction – perhaps due to the build up of major risk events such as tomorrow’s CPI and the FOMC on Wednesday – which was ugly on the surface if stronger below, with solid foreign demand but a big tail nonetheless. Not surprisingly, the market reaction was to first push 10Y yields to session highs but then they tightened a bit as the market realized the auction was not as ugly as some kneejerk hot takes concluded.