February 2, 2023

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10 year note auction takes on more importance post CPI data

3 min read

WI yield is currently trading at 1.69%

The US Treas. auction off $41 billion of 10 year notes at 1 PM ET.  The current WI yield is trading at 1.69%.  That is just above the yield from last month at 1.68%. The yield last month was the highest since January 2020 when the auction yield came in at 1.869%. 

The much higher CPI data today is making the auction a key barometer for the debt market trajectory.  The yield is higher today (currently up 6.4 basis points) and on the edge of some key technical levels. Higher rates in this sector tend to influence things like mortgage rates. That could lead to less housing demand as the combined rise in prices with higher yields are a double whammy for perspective buyers.

WI yield is currently trading at 1.69%

Looking at the hourly 10 year note chart above, the yield today is testing the high yield from April 29. A move above that level would open the door for further upside potential.

Taking a broader look at the daily chart, the 50% retracement of the move down from the November 2018 swing high (was the highest yield since April 2011), comes in at 1.806%. That would be the next key target on more upside momentum. Move above THAT level and traders will be focusing on 2% as the next key target.

Tenure yield on the daily chart

Traders have so far kept a lid on the pair at technical resistance levels, but that can change real soon on a weaker auction result. 

What are some of the statistical averages over the last six months for the important details from the auctions?

  • Bid to cover 2.37X. The Bid to Cover is a ratio of the amount of bids in relation to the amount auctioned. A higher number is indicative of strong demand. A lower number is indicative of a weaker demand
  • Dealer takedown average is 24.2%.  A lower number is indicative of strong demand from external sources. A higher numbers indicative of dealers being saddled with more supply than the average.
  • Directs 16.4%.A direct bidder is an entity or individual that purchases Treasury securities at auction for a house account rather than on behalf of another party. Direct bidders include primary dealers, non-primary dealers, hedge funds, pension funds, mutual funds, insurers, banks, governments, and individuals.
  • Indirects 59.4%. Indirects are commonly though as  a foreign entity, who purchases Treasury securities at auction through an intermediary, such as a primary dealer or broker. They are representative of foreign interest for which the US debt market relies on.  Less demand is indicative of lower foreign demand at current yields.  

The other key level to watch is the Tail. The tail is the difference between the WI (or When Issued) yield a the time of the auction (at 1 PM) and the high yield announced soon after the auction time. The average tail over the last six auctions was -0.1 basis point. If the yield is higher  – say 1.70% when the WI yield was 1.69% or 1 basis point tail –  that is indicative of a poor auction, while a high yield of 1.58% or -1 basis point tail, would be indicative of a good auction.  

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