No surprise! -- Stone & McCarthy (Princeton) -- The 2-year note auction this afternoon went well. The stop came in below the 100pm bid side and the bid cover was quite solid. The indirect share of the takedown was a little below average though. The auction stopped at 4.404%, in line with the pre-auction stop talk. The issue was bid at 4.410% at the 100pm bidding deadline. 6.00% of bids at the high yield were accepted. The issue will carry a 4 3/8% coupon. The bid cover came in at 2.42 relative to an average of 2.16 over the prior 12 auctions. Non-comps were also very strong at $920 mln, relative to an average of $899 mln over the prior 12 auctions.
All in all I was expecting a little more today, didn't seem like bills wanted to go one way or another due to the news... Maybe we'll have to wait for new-homes... Two year, ah yes, definitely going more inverted if this keeps up...
From a newsfeed: >>"The auction will be a Street affair," said one head trader. "I think we will get it back to nearer 4.75% by auction time." >> <<'Using a give -1.25 bps roll vs. outstanding 2Y note, the WI 2Y is at 4.727% area right now - still a ways to go before 4.75%." >> Anyone is able to explain me please the second part of the commentary?
Stone & McCarthy (Princeton) -- The 2-year note auction this afternoon was vanilla. The auctions stopped a tad right at the 1:00PM bid and generated a an average bid/cover. The good news is that indirect bidders took down a relatively high 35.8% of the auction. The auction stopped at 4.73%, right on pre-auction stop talk. The issue was bid at 4.73% at the 100pm bidding deadline. 12.15% of bids at the high yield were accepted. The issue will carry a 4 5/8% coupon. The bid cover came in at 2.12 relative to an average of 2.23 over the prior 12 auctions. Non-comps were decent, coming in at $987 mln, relative to an average of $926 mln over the prior 12 auctions.
In terms of the roll, which was around -1.5 basis points, that means the WI 2-year is traded at a 1.5 basis point premium to the current two-year note. Thus, if one wants to roll an outstanding long position say from the current two-year into the one that was issued today they are slightly paying up. Considering the WI yield vs. the high yield on the auction results, which were both basically 4.730% (the auction did not really tail at all, thus no hedging really needed to come into the market). On the other hand, with Primary dealers taking down $13 billion of the $22 billion, or about 60%, it was a street-led affair. I think the traders bidding at the auction were probably a bit disappointed not much was alloted at the high yield and they also are getting these two-years pretty rich to the old ones, and one must consider that the FOMC will be raising rates possibly to 5% or more. I guess if you are in the camp that the Fed will signal they may pause and reevaluate econ numbers, then possibly raise rates again then the 2-year today was a good deal. Although, you could still wait till after the auction and probably get them a bit cheaper around 4.80% later this week. In simpler terms, the bond desks were looking for the two-years to cheapen up to 4.75% pre-auction, instead the two-year sat all day and didn't cheapen up pre-auction time so they are stuck for now with some expensive two-years. Don't be suprised if they try to bid the short end tomorrow after FOMC at least in attempt to sell out some of their two-year notes.
the FOMC is called upon to perpetuate a mythology consistent with GW's vision of the world that holds that debt risk that cannot be defined can be financed...... enemies that can't be seen can be defeated....... what folly.........