Traders will look for the robust Asian session for Treasuries on Tuesday to pave the way for a solid start to the week’s U.S. auctions after pre-sale volatility last month led to a rout.
With February’s disastrous seven-year sale still fresh in minds, yields on the maturity ticked two basis points lower to 1.32% as of 1 p.m. in Hong Kong. That’s a far cry from the jitters seen on Feb. 25, when seven-year yields were already up 14 basis points ahead of that day’s auction deadline.
The pre-auction weakness set the tone for the sale -- it saw the smallest bid-to-cover ratio on record. Allotment data released in March show foreign demand had plummeted to just 8%, the lowest since at least 2009. The equivalent for domestic investors fell to 49%, its lowest since May 2020.
Contrary to the narrative that demand was already stalling, the six-month moving average of foreign interest had been in an uptrend, while the domestic measure was stable. That suggests the slump in buy orders may be a one-off, with investors likely spooked by the significant volatility on the day.
Sudden Slump
Demand for 7-year notes was steady before February's auction
Source: U.S. Treasury Dept., Bloomberg
On Tuesday, the Treasury department will sell $60 billion in two-year notes, the first installment of the week’s supply. It sells seven-year notes on Thursday.
With two-year yields higher by three basis points since the last sale and short-end maturities likely to be “well anchored” by the Federal Reserve outlook, the auction will be digested with relative ease, wrote JPMorgan Chase & Co. strategist Jay Barry in a note to clients.
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March 23, 2021 at 02:03PM
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Treasury Auctions Primed for a Smooth Run as Markets Stay Calm - Bloomberg
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