The Three-Auction Rule
This week's U.S. Treasury bond auctions were the polar opposite of last month's cycle of the same maturities. Not only that, but we violated the Graff "three-auction rule," which states that we very rarely get three good auctions or three bad auctions in the same week. What does this tell us about demand for rate product going forward?
To recap, last month's cycle of three-year, 10-year, and 30-year bond auctions was historically strong. The three-year was ho-hum, but the 10-year Treasury auction saw tremendous demand, with domestic accounts in particular bidding very aggressively. This bled through to the 30-year auction the next day, where foreign investors seem to bid strong prices (but not in especially large amounts). This week we got the same set of maturities out for auction, and all three laid an egg. Almost all statistical measures of these auctions were weaker: bid/cover, end customer bids, and yield vs. pre-auction trading. All came out poorly for all three auctions....373 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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