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US Treasury yields were marginally higher on Wednesday, up by 2-3bp. The US Treasury’s largest ever auction of the 10Y, issuing $42bn saw solid demand at a yield of 4.093%, stopping through (Term of the Day, mentioned below) by 1.2bp. The bid-to-cover came at 2.56x, akin to the prior 10Y auction while and indirect bidders took 71% vs. 66% in the prior auction. Bloomberg notes that the latest auction broke a streak of tails for the previous four monthly sales. Looking at credit markets, US IG and HY CDS spreads tightened 0.2bp and 1.2bp respectively. Equity markets saw the S&P and Nasdaq rise 0.8% and 1% respectively.
European equity markets ended lower. Credit markets in the region saw the European main CDS spreads widen by 1.1bp and crossover spreads widened by 1.8bp. Asian equity markets have opened mixed today. Asia ex-Japan IG CDS spreads tightened by 1.3bp.
Turkey Wealth Fund raised $500mn via a 5Y bond at a yield of 8.375%, a strong 75bp inside initial guidance of 9.125% area. The senior unsecured bonds are rated B, and received orders of over $1.5bn, 3x issue size. The bonds have a change of control put at 100. Proceeds will be used for general corporate purposes. The wealth fund is owned by the Government of Turkey. The new bonds offer a yield pick-up of ~90bp over the Turkey sovereign’s 9.375% 2029s that yield 7.47%, rated B.
Auction tails and stop throughs are metrics that can help in understanding whether the auction was well bid or not and is to be seen with the bid-cover ratios and other metrics. These are particularly observed in Treasury securities auctions. An auction tail occurs when the final yield of the bond auctioned is higher than the when-issued yield (WI yield) and can indicate that demand was not strong enough even though bid-cover might have been strong. On the other hand, a stop through occurs when the final yield is lower than the when-issued yield (WI yield) and can indicate that demand was particularly strong for that bond.
For example, in yesterday’s $42bn US 10Y auction, the auction stopped through by 1.2bp, as the bonds stopped at 4.093% vs a WI yield of 4.102%.
On ECB must be patient with rate cuts – ECB board member Schnabel
“Selling-price expectations in services, they have gone up for several months in a row. We see sticky services inflation. We see a resilient labour market. At the same time we see a notable loosening of financial conditions”
On Dollar on defensive after pullback from nearly 3-month peak
James Kniveton, senior corporate forex dealer at Convera
“If positive economic data, particularly on inflation, persists in the U.S., the tide could turn towards earlier rate cuts, potentially weakening the greenback further… markets are in the process of recalibrating their expectations for Federal Reserve policy”
On Uncertainty back into US Treasuries after Fed, data
Robert Tipp, chief investment strategist at PGIM Fixed Income
“The combination of the jobs numbers and the Fed press conference has really caused a splintering in the potential outcomes”
Spencer Hakimian, CEO of Tolou Capital
“We are more exposed to the front end of the curve because we believe there’s a lot less interest rate risk there”
Jason Pride, chief of investment strategy at Glenmede
“It doesn’t mean they can’t cut rates, it just means their pace is a little slower”