Some closing rates market thoughts from a variety of sources after todays less than optimal 7yr auction.
First, from BBG
Treasuries Breach Support on Light Volume; 7-Year Auction Tails
Treasuries cheapened Wednesday led by the 10-year, whose yield rose as much as 7.4bp to the highest level this month and closed above its 50-day moving average for the first time since Nov. 24. Yields reached session highs after the monthly 7-note auction, the last coupon auction of 2021, tailed by the most since March.
Yields beyond the 5-year were higher by 5bp-7bp in late trading, the 10-year by more than 6bp at 1.544%; 7- and 30-year yields also closed above their 50-DMAs for the first time in weeks
$56b 7-year note auction was awarded at 1.480% vs 1.457% WI yield at bidding deadline; the 2.3bp tail made it the worst by that metric since notably sloppy 7-year sales in February and March; November’s stopped through by 1bp
Treasuries sold off before the auction as a seller of 10-year futures emerged in the low-volume environment, at a level corresponding to the 50-day moving average in the cash market, according to Brean Capital’s Russ Certo; also, there are no Fed purchase operations slated between Dec. 22 and Jan. 3
Treasury and eurodollar futures and options volumes remained well below average; Treasury futures volume was ~56% of 20-day average, eurodollar options volume was ~55% of average
Updated estimate for Bloomberg Treasury index month-end extension is 0.07yr as of Dec. 28 vs 0.06yr as of Dec. 20
And here are some closing LEVELS and words from a British based outfit
…Rates across developed markets sold off today, with most curves bear steepening – the long end sold off by ~6bps, while the underperformance was sharpest around the 10y sector in Treasuries. Today saw the last auction for the year with the 7y note sale. Despite a solid concession earlier in the day, the auction still tailed by 2.3bps, adding further to the weakness of the sector and leaving the 7s30s spread almost unchanged on the day. Outside of rates, in FX space, the USD had a weak day as most peers gained vs. the dollar (with the exception of JPY). Overall, the risk sentiment was positive judging by the moves in yield curves and FX markets, but equities were only marginally up, with large US indices up by only ~0.15%.
I missed memo that John Hermann joined that band?
Then there is this from Citi,
… USTs stirred from their post-holiday torpor, managing a solid bear-steepening concession on improved volumes into the 1pm 7-year auction. Our franchise saw sociable selling flows from real$ types out of the US opening in the long-end, while US and WN volumes jumped in sympathy as 30y yields moved above the 50dma (first close since 11/23) … a bit of technical weakness (TYs breaking to 10d lows) went a long way in the void between the US opening and the 1pm auction. With 7-year WI trading at a 14bp premium to last cycle, sporting a minimal role and appearing a bit rich on the fly (5s7s10s -11bps in last 3-months), the value proposition wasn’t entirely attractive. Consequentially, the 1pm event saw the largest tail since March at 2.3bps, while end-user demand dropped to 78.8%, well off the November issue’s 82.6% (and four straight >80% readings). There was a bit of redistribution sales on the follow, though duration and curves generally stabilized (steeper and cheaper) post-supply, an eye on the week’s early cessation Friday afternoon (just claims and Chicago PMI remaining on the data slate).
Thee commentary came with this visual of 30yy,
first close above the 50dma in a month, also seeing a break above the support trend-line from the October yield highs. Momentum remains bearish, with a key test of demand next seen at the 2.01-2.03% zone.
AND completely unrelated but funtertaining, nonetheless — some technicals from AllStar Charts
… While our risk appetite ratios remain a mixed bag and most are simply range-bound, we just got a meaningful upside resolution in the High Yield vs Treasuries ratio.
The ratio of High Yield Bonds vs Treasury Bonds has been consolidating beneath a critical level of former support turned resistance for the past nine months. After challenging this level several times the ratio appears to be resolving higher, in favor of High Yield Bonds $HYG:
This is a big development as the bond market is sending a clear message that investors are reaching for more risk.
High Yield Bonds are often referred to as junk because they carry a higher degree of risk than their alternatives. To see market participants taking on increased risk in search of higher returns is constructive for risk assets in general. It’s something we see during uptrends.
Maybe the animal spirits are coming back to life after taking most of 2021 off?
We need to see similar action from other risk ratios to confirm this, but seeing high yield outperform again is a good start. Another important relationship that is pointing in the bull’s direction right now is the stocks versus bonds ratio as SPY/TLT just reclaimed its year-to-date highs. The bottom line is that these ratios making new highs is supportive of new highs for risk assets as it suggests that investors are starting to position more offensively…
Can’t wait to see what does(nt) transpire while we’re sleeping this evening. Will far east and EZ continue to follow Gilts higher OR will there be some value hunting?
Only the shadow knows…