Please eductate me on the 3yr note auction

Discussion in 'Economics' started by Digs, Dec 8, 2009.

  1. Digs


  2. The coupon is the amount of interest the bondholders will be receiving (coupon given is annual, but paid semi-annually). Higher or lower coupon doesn't mean anything (coupon is set at a nearest nice 1/8th of a percent number, such that the bond starts trading as close to par as possible, if it's a new issue).

    Bid/cover is the amount of bids received vs the amount of bonds actually sold. Generally, the higher this number the better, but, because you can submit all sorts of bids, the number is largely meaningless.

    Yield is the yield at which the auction cleared, which should, for a new issue, be normally very close to the coupon (see above).
  3. Digs


    So what would I see if a issue does not go well.

    What would the numbers look like ?

    Say nobody wanted to buy the stuff ??
  4. You would see yields that are much higher than expected compared to the coupon. It means that the issuer (the government in this case) was unable to sell all the bonds at the price they wanted and had to lower it.
  5. You would expect to see two things:
    a) very low percentage participation by indirect and direct bidders. These are basically end investors (including foreign CBs), rather than the primary dealers (who have to buy at auction).
    b) a large yield tail, i.e. the difference between the yield at which the bond (either the actual issue, if it's a tap, or a WI, if it's a new issue) was trading immediately pre-auction and the yield at which the auction cleared. For instance, today's 3y WI was trading at roughly 1.214% going into the auction, while the auction cleared at 1.223%. This equates to a 1bp tail, which is not a bad result at all.