The US treasury auctioned $22B of 30 year bonds at a high yield of 4.773%

The US treasury has auctioned off $22Bof 30 year bonds at a high yield of 4.773%

The WI (when-issued) level at the time of the auction was 4.774%

The results of a US Treasury auction act as a real-time “report card” on the market’s appetite for US government debt. Because US Treasuries are the risk-free benchmark for the entire global financial system, the results ripple across all asset classes—stocks, currencies, and commodities.

Given the auction result, my AUCTION GRADE: B

Reasons for the B grade.

• The tails was -0.1 basis points lower than the WI level. Positive.
• The Bid to cover was on the screws vs the 6 month average. Average.
• Indrect bidders were higher than the 6 month average. Slight positive for international buyers
• DIrect bidders were near the 6 month average. Average
• Dealers were saddled with slightly less than average. Slight positive.

US Treasury Auction Process: Key Components

The US Treasury auction process determines the yield (interest rate) the government pays on its debt. The market effectively “votes” on the price of US debt through this mechanism.

1. The “WI” Level (When-Issued) was 4.774%

• Definition: “When-Issued” refers to trading that occurs in the time between the announcement of an auction and the actual auction itself.

• Significance: It serves as the market’s “price consensus” or expected yield leading up to the deadline. It anchors the market’s expectations.

2. The Tail -0.1 basis point vs the 6 month average of 0.3 basis points

• Definition: The Tail is the difference between the High Yield (the actual yield determined at the auction) and the WI Yield (the expected yield right before the auction closes).

  • Tail = High Yield – WI Yield

• Interpretation:

  • Positive Tail (Weak Demand): If the auction yields higher than the WI level (e.g., WI was 4.00% but the auction stopped at 4.02%), it indicates that demand was softer than expected. Dealers had to lower prices (raise yields) to sell the entire issue.

  • Stopping Through (Strong Demand): If the auction yields lower than the WI level (e.g., 3.98% vs. 4.00%), it indicates aggressive buying.

3. Bid-to-Cover Ratio 2.36X vs the 6 month average of 2.36X

• Definition: The total dollar amount of bids received divided by the amount of debt being sold.

• Significance: This is the primary metric for demand.

  • Higher is better: A ratio of 2.5x means for every $1 of debt offered, $2.50 was bid. Ratios below average suggest weak demand and can spook markets.

4. The Bidders

The Treasury breaks down buyers into three categories to show who is buying the debt:

• Indirect Bidders 65.4% vs the 6 month average of 63.7%

  • Who they are: Foreign central banks, international investors, and some domestic investment managers placing bids through a primary dealer.

  • Significance: Often viewed as a proxy for foreign demand. High indirect participation is generally seen as bullish (strong global confidence in US debt).

• Direct Bidders 23.5% vs the 6 month average of 23.9%:

  • Who they are: Domestic money managers, insurance companies, hedge funds, and individuals placing bids directly with the Treasury (bypassing dealers).

  • Significance: Represents “real money” domestic demand.

• Primary Dealers 11.2% vs the 6-month average of 12.5%

  • Who they are: Large banks (e.g., Goldman Sachs, JPMorgan) designated by the NY Fed. They are required to bid in every auction.

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    Significance: They act as the “backstop.” They buy whatever supply the Directs and Indirects don’t take

    The US treasury auctioned $22B of 30 year bonds at a high yield of 4.773%