The US Treasury will auction $44B of 7-year notes at the top of the hour.
The auction results will be compared to the 6-month averages of the major components. One component is the Tail
The tail is the difference between the WI level (when issued level) at the time of the auction and the actually auction high yield .
Treasury issues trade before the auction at “when -issued’ yield levels. They represent ways for investors to hedge ahead of the auction when the bonds/notes are auctioned.
In a balanced auction the WI level at the time of the auction should equal the high yield from the auction but it rarely isn’t
If the high yield from the auction is above WI level, investor demand is thought to be less than stellar.Buyers were not willing to pay the WI yield for the issue.
Conversely, if the demand is strong, the bids to buy will accept a yield below the WI level at the time of the auction. If the WI level is 3.56% before the auction and the buyers are willing to accept 3.54%, there is thought to be strong demand.
The 2 and 5 year auctions on Tuesday and Wednesday each were auctioned with the high yield “on the screws” which is slang for at the WI level at the time of the auction. That rarely happens.
So today, will the “hat trick” happen? Probably not, but little nuances can be fun to root for..
The 6 month average of the major components for the 7-year auction shows:
- Tail 0.1 basis points. Last month the tail was 0.9 bps
- Bid to cover, 2.54X. Last month it was 2.5X
- Directs (the % of domestic buyers) 16.8%
- Indirects (the % of international buyers) 70.1%
- Dealers (the dealer take the rest) 13.0%.
The auction will take place at 1 PM with the results released a minute or two after 1 PM
