10 year note auction not good

The 10 yr note auction was weak as the yield was 2-3 bps above the WI. The bid to cover at 2.67 is in line with the average seen over the past year but the 2nd weakest over the past 5. Direct bidders also totaled a high 13% as buyers continue to avoid going to dealers directly to some extent and could be impacting the pricing and yield of the issue in a negative way. Indirect bidders totaled 33.2% which is about in line with the prior 2 auctions but well below the 5 before that. In light of the correction in equities and pullback in commodity prices over the past few weeks, one would have though this auction would have been better. It is worth discussing but maybe a bit too early to say whether the US is seeing collateral damage from Greece in having to pay higher rates to attract money. The 5 yr US CDS was at 36 bps on the day of the last 10 yr note auction in Jan. Today it’s at 53 bps, albeit down sharply from the 62 level yesterday morning.

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