Introduction
The Treasury completed the third and final leg of its August refunding operation today by auctioning $14 billion of 10-year notes. Bidding results appeared strong, but...
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Earlier today, the Treasury auctioned $14.0 billion of 10-year notes. The issue was sold at a market-clearing yield of 4.270%, and the auction had a bid-to-cover ratio of 2.90. By comparison, the 10-year note sold in the Treasury's May refunding went off at a market-clearing yield of 4.840%, and a bid-to-cover ratio of 2.00.
Total competitive and noncompetitive tenders today were $40.594 billion, excluding an allotment of $1.718 billion to the Federal Reserve System. Additional details are contained in the tables below.
Now begins the cat-and-mouse game of trying to assess just how well Wall Street dealers did the refunding, "did" here associated with how well all the issues were distributed into the hands of strong retail buyers. (Strong buyers, as opposed to buyers looking for a flip.) Sometimes, what you think you saw in the bidding results is not what you really got, and I have a hunch there may have been an inordinately large number of potential "flippers" who took a shot at today's 10-year note.
My long-term experience has been that it takes some time to make this assessment, certainly a bit passed settlement date. In this instance, settlement date is next Monday (8/16), which is when the securities must be paid for and real money changes hands.
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TABLE 1.
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RESULTS OF THE AUGUST 2004
TREASURY REFUNDING OPERATION*
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Bid/
Auct. Amt. Cover Non-
Date (Bils) Maturity Coupon Yield Price Ratio Comp.#
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08/09 $22.0 08/15/07 2.750% 2.842% 99.737 2.02 $0.276
08/11 $15.0 08/15/09 3.500% 3.520% 99.909 2.64 $0.184
08/12 $14.0 08/15/14 4.250% 4.270% 99.838 2.90 $0.119
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*All three issues are dated 8/15/04 and settle on
8/16/04. #Amount of issue (in billions) awarded
based on non-competitive tenders submitted.
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TABLE 2.
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AUGUST 2004 TREASURY REFUNDING OPERATION
-- AWARDS TO "PRIMARY DEALERS"
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Total Comp- Award to
et. Tenders "Primary" Award to
Accepted Dealers* "Primary"
Issue -- ($s in Billions) -- Dealers*
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3-Yr. Note $21.724 $13.798 63.5%
5-Yr. Note $14.816 $ 8.255 55.7%
10-Yr. Note $13.881 $ 6.230 44.9%
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Total $50.421 $28.283 56.1%
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May 2004 Refunding
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3-Yr. Note $23.683 $12.791 54.0%
5-Yr. Note $14.778 $ 9.442 63.9%
10-yr. Note $14.798 $ 8.282 56.0%
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Total $53.259 $30.515 57.3%
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February 2004 Refunding
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3-Yr. Note $23.772 $12.526 52.7%
5-Yr. Note $15.783 $ 8.927 56.6%
10-yr. Note $15.866 $ 8.630 54.4%
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Total $55.421 $30.083 54.3%
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November 2003 Refunding
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3-Yr. Note $23.785 $14.759 62.1%
5-Yr. Note $15.816 $10.836 68.5%
10-yr. Note $16.844 $10.237 60.8%
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Total $56.445 $35.832 63.5%
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August 2003 Refunding
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3-Yr. Note $23.722 $19.137 80.7%
5-Yr. Note $17.763 $11.879 66.9%
10-yr. Note $17.760 $12.218 68.8%
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Total $59.245 $43.234 73.0%
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May 2003 Refunding
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3-Yr. Note $21.726 $15.709 72.3%
5-Yr. Note $17.784 $11.909 67.0%
10-yr. Note $17.831 $13.565 76.1%
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Total $57.341 $41.183 71.8%
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*The Treasury definition of "Primary
Dealers" is "submitters bidding for
their own house accounts."
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