32 billion of 7 year notes just hit the auction block. The yield came in at 3.127% with 51.1% going to the Indirect Bidders (great number). Bid to cover was 2.85 to 1 (average is 2.71 to 1) which is a plus as well. The only negative (not huge) was that the issue produced a .05 bp tail.
A few of you have asked, “what do you mean by a tail.” At the final bell of the auction (12:00 cst), the screen will reflect the final yield or offered yield for that auction. Bidders put in an orders which can range from a certain price to “when issued”, meaning they will take the final yield at the bell. If all of the bids are at the final yield or below, everyone’s order gets filled at that price/yield. We call that a “bullet” auction. When that is not the case, the issuer (Treasury) will go to the next highest yield and award orders until the entire issue is sold.
So, today’s auction went to the masses at 3.127% with a small percentage being awarded at 3.177%, producing a .05 bps “tail”. Hope this makes sense. Overall, we’ll give this auction a B plus. Speaking of B’s, the stock market has one in its bonnet, down over 100 points on the big board. Reasons for the selling stem from worse than expected Durable Goods Orders (plus .3%) and Weekly Unemployment Claims (down 8K expected to be down 20K).
Greece is still in the news as its sovereign debt takes a pounding. It didn’t help when ECB President Trichet said that each country must take care of itself and not expect the EU to bail them out. So, so earnings are in part to blame as top line revenue growth is ok at best, leading to the conclusion that stocks may be in for a 10% to 20% correction. Sure looks like it to me.
Currently, the 10 year note is off 7/32’s (yield 3.67%), mortgage backed securities off 3/32’s, and stocks off over 100 points. As we mentioned yesterday, the chart points to a top in the making, evidenced by its failure to hold below the 3.65% yield mark. We see the market in a consolidation phase, one that could push yields closer to 3.72%. The best the market can hope for (short term) is to stabilize at current levels given all the uncertainty in stocks and global assets. Good idea to stay defensive and see how the next day and a half play out.