US to sell USD 12bln 30-year bonds at 1800 GMT (1200 CT/1300 ET)

NET SUPPLY: The US Treasury will auction USD 56bln in 3s (USD 24bln sold on Monday), 10s (USD 20bln sold 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.

30-YEAR PREVIEW: November’s auction of new 30-year bonds stopped-through the screens by 0.2bps, with cover coming in above recent averages, whole the 5s30s curve has narrowed by over 17bps.

Yields on 30-year bonds have cheapened by around 3bps since the November auction cycle, with investors piling into flattener trades. The latest positioning data indicates that dealers have raised net longs in the 11-year+ sector to the most since September, at USD28.3bln (week ending 29 November).

Looking to Tuesday’s auction, analysts at Societe Generale write that the “current 30-year is fair to cheap on asset swap versus the older 30s when compared to previous auction cycle.” The bank holds a slightly positive bias going into the auction, though suggests that some concession would be required.

“The auction will likely benefit from duration demand, though the sector seems rich on valuation, as the 5s30s curve is trading near its lowest level since late 2007 and the outright yield is trading above the stops from the past 13 30y auctions,” SocGen writes.

In terms of negatives, the proximity to the US CPI data and FOMC meeting may result in some investor caution.

- High yield: Previous 2.801% (vs six-auction average of 2.848%)
- Tail size: Stopped-through by 0.2bps (vs six-auction average 0.1bps tail)
- Bid-to-cover: 2.23x (vs six-auction average of 2.32x)
- Dealers: 31.8% (vs six-auction average of 30.3%)
- Directs: 6.4% (vs six-auction average of 7.1%)
- Indirects: 61.8% (vs six-auction average of 62.6%)

12 Dec 2017 - 17:45- Fixed IncomeResearch Sheet- Source: RANsquawk

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