AUCTION PREVIEW: US USD 12bln in 30y Notes

Today the US Treasury is to sell USD 20bln in 10y notes and the results are expected shortly after 1800BST (1200CDT).

Looking at the historical data, the B/C at the last auction held was 2.21, dealers took down 34.4% of the issue and indirect bidders accounted for 58.8%. The auction prior to the last had a B/C of 2.32 and indirect bidders accounted for 66.8% of the issue.

The average of the past six auctions has seen a B/C of 2.28, dealers have taken 31.4% and indirects have taken 62.4% of the paper over that horizon.

The average of the past three auctions has seen a B/C of 2.32, dealers have taken 27.8% and indirects have taken 62.4% of the paper over that horizon.


30y auctions have generally tailed in recent times. Only one auction over the past 12 months has come through. Final demand has weakened somewhat. On a three-month moving average basis, since May, foreign demand has declined 4pp, which has only been partially offset by higher demand from investment funds. The sector appears to have set up as the 10sUS30s fly has richened in line with typical price action going into a non-refunding bond auction.

Societe Generale:

From a relative value perspective, the current 30y is trading rich on asset swap versus the old 30s compared with the previous two auctions. The 5s30s curve has flattened since the last auction. Overall The upcoming 30y bond auction will likely need concession to be underwritten smoothly because it lacks a clear set-up. A flatter curve since the last auction, the continuing drop in foreign demand at the long end and September CPI risk on Friday are negatives for the auction along with the poor reception of last month's auction. However, the latest sell-off has made the sector attractive on an outright basis, as the benchmark yield trades above the stops from the last two sector auctions. In addition, the FOMC minutes on Wednesday will likely provide some clarity, which should help the set-up for the auction on Thursday.

12 Oct 2017 - 16:00- Fixed IncomeData- Source: RANsquawk

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