Stellar 3Y Auction: Highest Bid To Cover Since Sept 2015, Foreign Demand Surges

Unlike last month"s ugly 3Y auction, today"s just concluded sale of $24 billion in 3 year paper was stellar, stopping through the When Issued 1.934% by 0.2bps, a surge in buyside demand as the Bid to Cover jumped from 2.76 to 3.15, the highest since September 2015, while Indirect Bidders took down the most since August.

The details: the high yield was 1.932% vs six previous auction average 1.572%, it stopped through the WI of 1.394%.

The Bid-to- cover was 3.15, up from 2.76 in October, and well above the previous six auction average of 2.88.

Dealers were awarded 33.6%, slightly below the six previous auction average 35.2%, and down from 37.5% last month, while Direct bidders took down 7.4%, below last month"s 9.0%, and down from the six previous auction average 8.8%.  Finally, foreign central banks and reserve managers, i.e., Indirect bidders were awarded 59.0% vs the 6auction average 56.0%, and up from 53.5% last month. It was also the highest Inidrect award since August 2017.

Overall, a very solid auction and one which sets the stage for today"s second, benchmark bond auction of 10Y paper set for 1pm.

Tailing 2Y Auction Prices At Highest Yield Since September 2008 As Foreign Buyers Stay Away

With 2Y yields having jumped sharply in recent week, it was not surprising that today"s auction of $26 billion in 2Y paper would have a high yield, and sure enough, printing at a high yield 1.765%, the highest since September 2007, tailing the When Issued 1.763% by 0.2bps, and well above the six previous auction average of 1.410%. This was the third consecutive tailing 2Y auction.

The internals were hardly impressive, with the bid-to- cover of 2.725, lower than both last month"s 2.74 and also below the six previous auction average 2.91.  In fact, it was the lowest since January"s 2.682%, with total bids of $72.3bn for $27.4bn in notes sold vs six previous auction average of $78.0b in bids for $28.3b in notes sold.

Also not surprising perhaps is that foreign buyers were less than enthusiastic, with Indirect bidders awarded only 41.9% of the auction, down sharply from last month"s 48.2%, and below the 6 month moving average of 51.7%. It was also the lowest since December 2016. Dealers were awarded almost the same, or 41.2%, far higher than the six previous auction average 32.7%. Finally, direct bidders received 17% of the auction, roughly in line with the 17% average of the prior 6 auctions.

Overall, the auction confirms that investor interest for the short-end of the curve is waning, and suggests that more rate hikes by the Fed are coming, which in turn will push the 2Y yield even higher, further steepening the yield curve in the coming days.

Einstein"s Scribbled Theory On Happiness Sells For $1.6 Million – 195x Highest Expectations

A scribbled note by Albert Einstein which described his theory on the key to happy living was sold at auction in Jerusalem for $1.56m.

According to The Telegraph, the winning bid for the note far exceeded the pre-auction estimate of between $5,000 and $8,000, according to the website of Winner"s auction house.

"It was an all-time record for an auction of a document in Israel," Winner"s spokesman Meni Chadad told AFP…Bidding in person, online and by phone, started at $2,000. A flurry of offers pushed the price rapidly up for about 20 minutes until the final two potential buyers bid against each other by phone. Applause broke out in the room when the sale was announced.

The newspaper reports that Einstein was on a lecture tour of Japan in 1922 and had recently been awarded the Nobel prize. Einstein didn’t have cash to pay a tip to a bellboy in the Imperial Hotel in Tokyo, so he gave him two notes, predicting they would be worth more than a tip. He is reported have said.

“Maybe if you"re lucky those notes will become much more valuable than just a regular tip.”

The Telegraph continues, Einstein dedicated his life to science, but suggested in the notes that fulfilling a long-term ambition doesn"t necessarily guarantee happiness. 

The note said.

“A quiet and modest life brings more joy than a pursuit of success bound with constant unrest.”

The anonymous buyer was from Europe.

The notes were sold by an anonymous Hamburg resident who commented "I am really happy that there are people out there who are still interested in science and history and timeless deliveries in a world which is developing so fast."

On the second note was written “where there’s a will, there’s a way”. It sold for $240,000.

 

Primary Dealer Bid Surges In Poor 2Y Auction

While the high yield of the just priced 2Y auction came "on the screws" at 1.345%, below last month"s 1.401%, but above the six previous auction average of 1.305%. and exactly where the When Issued suggested today"s auction of $26 billion in 2Y notes would price, the internals were decidedly weaker than the stop out would suggest.

The bid-to- cover of 2.86 was a notable decline from last month"s 3.06%, as well as below the 6 month average of 2.90%. It was also the lowest since April.

However, the most surprising aspect of today"s auction was the surprising surge in Dealers take down which surged to 41.6%, up from 24.6% in July, the highest since January, and well above the six auction average of 29.3%. And since the direct bidder award of 12.6% was below both July"s 16.9% award and the six previous auction average 15.0%, it meant foreign buyers, aka Indirect bidders, were awarded only 45.8%, a sharp drop from last month"s 58.5%, and below the six previous auction average 55.7%.

Quoted by Bloomberg, FTN strategist Jim Vogel said that metrics fell short of historical benchmarks due to the “odd timing of the sale and general lack of change in short UST since the end of July.”  Bloomberg also notes that the auction was expected to struggle because of U.K. holiday, summer vacations and its position 90 minutes before 5Y issue.

Overall, a rather weak auction which was saved by the jump in Dealer awards, perhaps reflecting growing debt ceiling fears ahead of the X-Date some time in late September, early October.

Ahead Of The Fed: Strongest Demand For 2Y Paper Since 2015; Lowest Dealer Award On Record

With the FOMC members currently huddling deep inside the bowels of the Marriner Eccles building, perhaps scheming how to spook markets by announcing a surprise rate hike tomorrow, one would have assumed demand for 2 Year paper in today"s auction would be less than stellar. One would be wrong, because moments ago the Treasury sold $26bn in 2 year paper to what was clearly an overabundance of demand: the high yield of 1.395% stopped through the When Issued 1.401% by 0.6 bps, and was the highest yield going back to October 2008.

The bid-to-cover rose to 3.06 from 3.03 in June, and was above the six previous auction average of 2.84. It was also the highest Bid to Cover since November 2015.

The internals were also rather impressive, with Indirects taking down 58.5%, above the 56.6% in June, and above the 6MMA of 54.1%. Directs were awarded 16.9%, down slightly from 18.4% last month and above the 6 month average of 13.7%. Combined these two meant record buyside interest, leaving Dealers with just 24.6% of the auction, down from 25.0% and below the 32.1% 6month average. This was the lowest Dealer award on record.

In other words, if anyone was worried about a surprise announcement by the Fed tomorrow, one which would send 2Y yields spiking, it wasn"t to be found among the bidders for today"s auction.

3-Month Treasury-Bill Auction Prices At Highest Yield Since Lehman On Debt-Ceiling Concerns

It seems Morgan Stanley was right when they said "the debt ceiling worries us most," as today"s 3-month T-Bill auction surprised the market with its highest yield since the fall of 2008, as investors continue to price concerns that the U.S. government will exhaust its borrowing authority around mid-October.

As SMRA details:

The 3-month bill auction stopped at 1.180%, with a 67.70% allocation at the high yield. The 3-month auction bid/cover ratio was 2.87. The average 3-month bid/cover over the past three months was 3.13. The WI was last trading at 1.165% at 11:30 AM. Indirect bidders took down 38.44% of the 3-month bill auction and Direct bidders took down 5.61%.

The 6-month bill auction stopped at 1.130%, with a 34.87% allocation at the high yield. The 6-month auction bid/cover ratio was 2.91. The average 6-month bid/cover over the past three months was 3.30. The WI was last trading at 1.115% at 11:30AM. Indirect bidders took down 40.66% of the 6-month bill auction and Direct bidders took down 2.69%.

So the 3-month bill is priced 5bps cheaper than the 6-month bill and both dramatically tailed.

As BofA noted, the early pricing of debt limit concerns may reflect overhang from this week’s bill auctions and the "greater influence" of government money market funds following October"s reforms.

But, Morgan Stanley recently warned that the biggest immediate risk to the market is:

The debt ceiling worries us most, given that action may need to be taken within as little as seven weeks. But on the other issues, we’re more relaxed. The Senate’s Healthcare bill had an approval rating of 17%, so we doubt its failure would be a hit to consumer confidence. The Special Counsel’s investigation, whatever the outcome, will likely take considerable time. Our economic baseline was already cautious with regard to fiscal stimulus, a long-held view of our policy team. And while tax cuts could boost the market temporarily, they could also lead to a more hawkish Fed, a classic ‘be careful what you wish for.’

As the 3mo6mo yield curve inverts dramatically...

Inflecting right around the mid-October date of today"s auction...

10 Year Auction Tails Despite Strongest Foreign Central Bank Demand Since January

Following the earlier blockbuster 3Y auction, which stopped through and printed unexpectedly strong metrics in every possible category, moments ago the US followed up with today"s second auction, a 9-year-11-month reopening of CUSIP X88, in which $20 billion in paper was sold, once again largely to willing foreign bidders, which however unlike today"s earlier auction priced at a high yield of 2.195%, tailing modestly the When Issued of 2.188% by 0.7 bps. This was the lowest 10Y auction stop since February, and was over 20bps below the 2.40% in May.

The tail may have been the result of the move in the curve following the earlier auction as demand for various maturities sought to find equilibrium prices along the spline. Incidentally, this was also the 3rd consecutive tailing 10Y auction in a row, and 6th of the last 8.

Despite the tail, the internals were strong, with the Bid to Cover coming in at 2.54, the highest since March, and above both May"s 2.33 and the 6 month average of 2.45. Indirect demand rebounded, with foreign central banks taking down 66.1% of the auction, above 60.7% in May, and the highest since January. Directs were awarded 5.3%, in line with recent auctions, if below the 6 month average due to the March 15.7% outlier print. Dealers were left with 29.6%, below the 34.2% in March and almost on top of the 6 month average of 28.3%. 

Overall, a strongish auction, if not quite the blockbuster that priced 90 minutes earlier.

SNAP Surges Above $40 Billion - Bigger Than Ebay Or Sony

Desperate buyers  - fearful of missing out on the next Facebook - are panic-bidding Snap"s stock price this morning. Up 17% to $29 the cash-losing company is now worth almost $41 billion - more than Ebay or Sony...

We wil have to wait for Monday/Tuesday for the shorts to appear (T+3)...

The question seems to be - Facebook, Twitter, or... Pets.com?