US Auctions will be closely monitored this week!

On February 25th, the Treasury auctioned 7-year notes. It did not go well.

FED 7

This week, the US Treasury will be auctioning off the following:

  • Tuesday: 3-year notes
  • Wednesday:  10-year notes
  • Thursday:  30-year bonds

In addition, the Treasury will also be issuing a few short-term duration bills (less than 1 year).  There is also a good deal of corporate bond supply this week.  

Recall on February 25th when the Treasury auctioned 7-year notes.   It did not go well.  As a result, bond prices moved lower (on less demand) and yields moved higher (yields move inversely to bond prices):

5-Year Yields


Source: Tradingview, City Index

10-Year Yields


Source: Tradingview, City Index

Terms to know for the auction:

In addition to yields (which should be compared the previous auctions) There are several data points released after the results of the auctions are made available (usually a few minutes after 1:00pm ET).  However, there are two important ones to pay attention to in order to determine if an auction went well:

1)      Bid-to-Cover (from Investopedia): the dollar amount of bids received vs the amount of Treasury securities sold.  Bid-to-Cover ratios typically exceed 2.0.  A successful bid-to-ratio should substantially exceed the average of the 12 previous ones.  A low ratio is an indication of a poor auction. 

*The bid-to-cover from the 7-year auction on February 25h was 2.045, the lowest on record

2)      Indirect vs Direct bidders (from Investopedia): An indirect bidder, commonly a foreign entity) bids throughs another party.  A direct bidder purchases the Treasuries during the auction for themselves or their house account.   Indirect bidders are often used as a proxy for demand by foreign investors.

*In the 7-year auction on February 25th, only 38.06% of the bidders were indirect bidders.  This left direct bidders (mainly primary dealers) taking away the balance of the auction.

Market Reaction:  With the weak 7-year auction on February 25th, the markets sold bonds, sold stocks, and bought US Dollars ( as yields went higher).  Traders could expect a similar reaction this week if they auctions are poor.  Therefore, US Dollar counter currencies should move lower verse the US Dollar if results are poor.

Learn more about forex trading opportunities.

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.