Monday’s sale of $8 billion in inflation-indexed securities (TIPS) attracted good demand.
Tuesday’s sale of $35 billion in 3-year notes on at a yield higher than many expected and amid statistics about bidding that indicated lackluster demand.
Wednesday’s sale of $19 billion worth of 10-year notes at a yield of 3.365%. Bidders offered $3.28 for every dollar sold, compared to $2.62 at the last auction in June. Bonds and notes traded higher on lower equities and in anticipation of the day’s 10-year Treasury [[TNX]] note auction. However, a bulk of the buying came in post-auction trade. Also, the 3.28 bid to cover was said to be the highest in about 15 years. Indirect bidders made up 43.9% of the sale. Word got around that China was a big buyer 10-year notes, leading up to the auction. Direct buyers were the U.S. institutional buyer, it’s pension funds, it’s state accounts who are moving out of riskier investments into Treasury bonds. Another 13% of the sale went to direct bidders, or investors buying the debt for their own accounts. The more the auction goes to direct and indirect bidders instead of primary dealers, the better off for the market. That’s because dealers often turn around and have to sell the debt, pressuring prices.
Thursday’s sale of $11 billion in 30-year bonds which drew a yield of 4.303% and a bid-to-cover of 2.36 are re-openings of securities sold during the government’s quarterly refunding in May, meaning they carry the same coupon and maturity date as the original debt. The Treasury is using reopenings as a way to spread out the sales of increasing amounts of debt needed to finance the government’s and the Fed’s programs to revive the economy and ease credit-market strains. Thursday’s sale marks the first time the government reopens the 30-year bond for both months between re-fundings.
Once again, foreign investors continue to show strong interest in U.S. backed securities, the indirect take was about 50% However, the 30-year (ZBU9 / TYX) driven higher in the previous day due to the successful 10-year auction (ZNU9 / TNX) causing a sell off in treasuries much of the day.
The Fed bought bonds with maturities in 2010 and 2011 in the amount of $2.999 billion which was a small percentage of the $17.094 billion that Primary dealers were trying to unload.
On Friday Treasuries erased yesterday’s losses
The sharp decline in the energy markets has been made on the premise that speculators have lost faith in the economic recovery. The unsettling pessimism in crude has, by osmosis, made its way into equities and in turn has been a major contributing factor to the Treasury rally. Crude was dramatically oversold and should be approaching significant support areas. A reversal, albeit temporary, should take the selling pressure off of equities and should trigger a Treasury correction.
Downside targets for a correction:
117′140 in the 30-Year Bond
116′000 in the 10-year note
114′25 in the 5-year note.
