PREVIEW: US Treasury will auction USD 20bln of 10-year notes at 1800 GMT (1200 CT)

NET SUPPLY: The US Treasury will auction USD 56bln in 3s (USD 24bln on Monday), 10s (USD 20bln on Monday), 30s (USD 12bln on Tuesday). With around USD 25bln maturing at the mid-month settlement, the auctions will raise a net USD 31bln in new cash, according to TD Securities. Additionally, with no Fed holdings set to mature mid-month, there will be no Fed add-ons, meaning the central bank’s balance sheet run-off will not impact these auctions.

10-YEAR PREVIEW: Since the last auction cycle, the Treasury curve has continued to flatten; front-end yields have edged higher in anticipation of a FOMC rate hike at its 13 December meeting (the market has fully-priced 25bps worth of tightening), while longer-dated yields have more-or-less drifted sideways.

Amid the flattening, yields on 10-year Treasuries have cheapened by around 3bps since the last auction cycle. “Recent 10-year auctions have seen mixed results as four of the past six auctions have tailed,” TD Securities writes. But the bank notes that, since September, yields on 10s have cheapened by around 30bps, and accordingly, this may attract more buying interest at today’s auction.

A look at the recent auction history shows that the average size of the tails at 10-year auctions has narrowed – over the last six auctions the average tail has been 0.5bps, but that has narrowed to 0.2bps on a three-month moving average.

At the most recent auction, dealers took down their smallest allocation since March, directs took the most since March, while indirect take-down was 68%. Cover was also above recent averages.

- High yield:
Previous 2.314% (vs six-auction average of 2.28%)
- Tail size: stopped-through 0.3bps (vs six-auction average of 0.5bps tail)
- Bid-to-cover: 2.48x (vs six-auction average of 2.42x)
- Dealers: 23% (vs six-auction average of 30.0%)
- Directs: 9.0% (vs six-auction average of 6.5%)
- Indirects: 68.0% (vs six-auction average of 63.5%)

11 Dec 2017 - 17:30- EquitiesResearch Sheet- Source: RANsquawk

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