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10yr Auction Preview
Posted to: Micro News
Wednesday, April 9, 2014 12:57 PM

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Bond markets have been fairly docile all morning, and the first opportunity to see more of a reaction now arrives with the 10yr Note Auction at 1pm. There are two key metrics we can observe to get a sense of the auction's strength: demand and the yield.

Demand is measured by the bid-to-cover ratio or BTC. The benchmark for today's auction can be taken from recent averages of the BTC from past auctions. With that in mind, 3 of the last 4 reopenings were in a range of 2.58 to 2.68, but the most recent auction was stellar, with a 2.92 BTC. Anything in the 2.6's is good. Anything more is gravy.

The yield is measured by the "High Yield's" relationship to the 1pm "when-issued" yield. This is basically just a way for markets to trade the security before it's actually been issued, and varies slightly from the normal Treasury yields seen on your screens. The 10yr WI is currently at 2.715, but may change slightly before 1pm.

If the "high yield" is higher than the 1pm WI, that's bad. Lower is good. The auction bidding cut-off is at 1pm, but results typically come out 90 seconds later.

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