Treasury 10-year auction preview: the auction faces a major headwind
Treasury 10-year auction preview: the auction faces a major headwind -- the mid-term elections. The uncertainty over and the importance of the results made for a poor 3-year auction yesterday, and is liable to make for soft results today. Additionally, there's the upcoming FOMC, and even though no rate change is expected, there are some worries over a more hawkish trajectory. The note has cheapened marginally with the wi rising 1.5 bps to 3.215%, and a stop there would be only marginally below October's 3.225% award rate, which was the highest since the spring of 2011. The note isn't that attractive on the curve, having narrowed a bit versus the 2-year. It's not on special in the repo market, and dealer positions went long in the recent week, so a short covering bid could be lacking. The increased volume with $27 B on the auction block, up from the $23 B October refunding and $26 B for the August refunding may weaken the cover ratio. Meanwhile, indirect bidding should remain decent with spreads still quite wide (+277 bps versus the Bund). Attention will be on direct bidding after recent weakness in that statistic. The October auction stopped at 3.225% and saw a 2.39 cover (2.51 average) and a 64.5% indirect bid (63.1% average). Direct bidders took 5.4% last month, while primary dealers took 30.1%.