PREVIEW: US to sell USD 42bln of 10-year notes at 18:00BST/13:00EDT

Auction History

• Tail: (prev. 0.2bps, six-auction average 0.4bps)
• High Yield: (prev. 4.282%, six-auction average 4.183%)
• B/C: (prev. 2.43x, six-auction average 2.47x)
• Dealer: (prev. 10.8%, six-auction average 10.3%)
• Direct: (prev. 23.9%, six-auction average 21.1%)
• Indirect: (prev. 65.3%, six-auction average 68.5%)

Primer

The 10-year yield currently trades at 4.451%, above both the prior 4.282% high yield and the 4.183% six-auction average, offering attractive outright yields for today’s auction.

Meanwhile, volatility has eased, with the MOVE index — a measure of Treasury market volatility — now trading around 70 versus roughly 80 at the time of the April 10-year offering, which may help support participation.

The April auction saw mixed demand dynamics, with direct bidders returning after a recent slump while indirect participation softened. The combination of higher yields and lower volatility could help support demand again at today’s auction.

Although in a different part of the curve, similar dynamics were seen in Monday’s 3-year auction, where direct demand recovered while indirect demand eased. However, part of that move may simply have reflected a reversal of April’s unusually weak direct demand and exceptionally strong foreign participation.