MBS RECAP: Moving Gently to Week’s Highs After Auction


The following contains weird words and abbreviations that are further explained in this Brief Discussion of Treasury Auction Jargon ).

This is a REFUNDING auction which happens once every three times (the other two being REOPENINGS). They’re stats differ a bit as follows:

– Refundings tend to have slightly lower bid-to-cover, but that gap has closed recently. The last refunding was 2.70 which was high at the time. The previous 3 were 2.68, 2.59, and 2.49 respectively. The last 2 reopenings were 2.57 and 2.53. It’d be fairer to expect today’s BTC to be there or under. In other words, anything over 2.5 is decent. 2.7 or more would be quite strong. 2.3-2.5 would be acceptably weak and sub 2.3 would be scary.

Refundings are less likely to “stop through” the 1pm “when-issued” (hereinafter: “WI”) yield. In fact, none of the last 4 auctions have stopped through and the last 4 refundings have tailed (come in higher than 1pm WI) somewhat significantly. WI is currently 2.623, but we’ll update it in chat in a few minutes.

The strength or weakness of the auction is more about the yield than the bid-to-cover. Indirect demand can tell us something as well (somewhat of a proxy for foreign demand) and has been around 35% for refunding auctions.

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