$24 billion of ten-year T-notes auctioned
The US Department of the Treasury holds a ten-year Treasury (IEF) notes (or T-notes) auction every month. The ten-year Treasury (UST) yield is a benchmark yield for financial markets. It’s used to compute the equity risk premiums for stocks (SPY). It’s also used as a benchmark yield for real estate mortgages.
- The auction was held on November 12.
- The auction size was set at $24 billion—$3 billion higher than October’s auction.
- The issue’s coupon rate was lower at 2.25%—compared to 2.375% in October.
- The high yield for November’s auction was lower at 2.365%—compared to 2.381% in October.
Direct bidding stronger at November’s auction
Despite the higher auction supply, the bid-to-cover ratio was unchanged at 2.5x month-over-month. The ratio has averaged 2.7x in all the auctions held in 2014.
Market demand for the ten-year notes increased in November on higher direct bids. The percentage of direct bids increased from ~6.7% to ~13.4% in the November auction. Direct bids include bids from domestic money managers—for example, American Insurance Group (AIG). Indirect bidders include foreign central banks. They accounted for ~44.7% of the bids. This was up slightly from ~44.4% last month.
Primary dealer takedown at the auction fell to ~42% of competitive bids—from ~49% in October’s auction. Primary dealers act as market makers for the auctioned securities. They’re obligated to bid at auctions. They include financial institutions like Goldman, Sachs and Co. (GS).
After the auction, ten-year Treasury yields fell by one basis point—or 0.01%—to 2.37% on Wednesday. Bond markets were closed on Tuesday for the Veterans Day holiday. With less market-moving data on Wednesday, Treasury yields didn’t change much. You’ll read more about the Treasury yield curve and other indicators that released last week in Parts 5, 6, and 7 in this series.
Three-year T-notes auction
In the next part of this series, we’ll analyze the key highlights from last week’s Treasury auction for three-year T-notes.