Results of the Treasury's $31 billion offering of two-year notes (a record offering) were fairly good, an indication that the reinstallation of rate hike odds has largely run its course. For example, just a week ago the market was priced for the fed funds rate to end the year at 2.17%. Today, the market is priced for the funds rate to end the year at 2.43%. Last week, two-year notes yielded just 2.37%, a level inconsistent with the idea that Fed rate hikes are more likely than rate cuts. Today's auction was for a yield of 2.82%, a level consistent with the notion of that rate hikes will be next, the likely scenario.
The cover ratio for today's auction was 2.42, which beat this year's average of 2.35 despite the record size of the auction. While today's cover ratio was below the 2.60 average of the past year, the 2.60 average occurred amid an auction size of $23.67 billion, meaning that the average amount of bids submitted was $61.5 billion. Roughly $75 billion of bids were submitted for today's auction.
Indirect bidders, which represent end-user demand, accounted for 36.7% of bids awarded, beating this year's average of 25%. Dealers hence are not burdened much by today's auction.
Tony Crescenzi Blog GSE Debt Trading Well 7/23/2008 11:22 AM EDT Yield spreads are indicating a decrease in concern over GSEs.
Tony Crescenzi Blog Mortgage Apps Low 7/23/2008 9:42 AM EDT By next spring, a potential return of consumer confidence could fuel a turn.
Tony Crescenzi Blog Yield Curve Flattens 7/22/2008 3:51 PM EDT Reduced worries about the economy is one bullish factor.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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